California Code of Regulations
Title 4 - Business Regulations
Division 17 - California Tax Credit Allocation Committee Regulations Implementing the Federal and State Low-Income Housing Tax Credit Laws
Chapter 1 - Federal and State Low-Income Housing Tax Credit
Section 10326 - Application Selection Criteria - Tax-Exempt Bond Applications

Universal Citation: 4 CA Code of Regs 10326

Current through Register 2024 Notice Reg. No. 38, September 20, 2024

(a) General. All applications requesting Federal Tax Credits under the requirements of IRC Section 42(h)(4) for buildings and land, the aggregate basis (including land) of which is financed at least fifty percent (50%) by tax-exempt bonds, shall be eligible to apply under this Section for a reservation and allocation of Federal Tax Credits. Those projects requesting State Tax Credits pursuant to subsection (g)(1)(A) of Sections 12206, 17058, and 23610.5 of the Revenue and Taxation Code will also be subject to the applicable requirements of Section 10317. All applicants requesting Tax Credits for projects financed with tax-exempt bonds shall apply simultaneously to the California Debt Limit Allocation Committee (CDLAC) and CTCAC and shall use the CDLAC-TCAC Joint Application. Applications will be eligible for a reservation of tax credits only if receiving a bond allocation pursuant to a joint application.

(b) Applicable criteria. Selection criteria for applications reviewed under this Section shall include those required by IRC Section 42(m), this Section 10326, and Sections 10300, 10302, 10305, 10320, 10322, 10327, 10328(e), 10330, 10335, and 10337 of these regulations. Other sections of these regulations shall not apply. The first funding round shall be the first application review period of a calendar year for tax-exempt bond financed projects.

(1) Subject to conditions described in these Regulations, reservations of Federal and State Tax Credits shall be made for those applications that receive a bond allocation from CDLAC until the established State Tax Credit allocation amount is exhausted. If the last application requires more State Tax Credits than remain for the calendar year, that application will not be funded, and the remaining credits will be either funded through the Waiting List or carried forward into the next calendar year. If there is not sufficient State Tax Credits to allocate to applications recommended for tax-exempt bonds by CDLAC, the State Tax Credits will be allocated based on ranking within the CDLAC pools and set asides in the following order:

(A) Black, Indigenous, or Other People of Color (BIPOC) Project Pool;

(B) Rural Project Pool;

(D) New Construction Pool, ELI/VLI Project Set Aside;

(E) New Construction Pool, Mixed-Income Project Set Aside;

(F) All remaining New Construction Pool Projects

(2) For State Tax Credits pursuant to Section 10317(j) of these Regulations, an amount up to $200,000,000 in a calendar year may be allocated for housing financed by CalHFA's Mixed-Income Program (MIP) that also receives a bond allocation from CDLAC. Applications with financing by CalHFA (MIP) will be accepted in any funding round. The amount allocated for CalHFA MIP may be reduced upon agreement of the Executive Directors of CalHFA and CTCAC.

At the conclusion of the final funding round of a calendar year, the Committee may establish a Waiting List of pending applications in anticipation of utilizing any State Tax Credits that may be returned to the Committee, and/or that have not been allocated to projects for which they were intended. The Waiting List shall expire on December 31 of the year the list is established.

(c) Application review period. The Committee may require up to sixty (60) days to review an application, and an additional thirty (30) days to consider the application for a reservation of Tax Credits. Applicants must deliver applications no less than ninety (90) days prior to the CTCAC Committee meeting in which they wish to obtain a decision. Applications not expected to receive a bond allocation from CDLAC due to relatively low CDLAC scores may or may not be fully evaluated by the CTCAC.

Applications requesting State Tax Credits allocated pursuant to subsections (g)(1)(A) and (B) of Sections 12206, 17058, and 23610.5 of the Revenue and Taxation Code and not in compliance with the application completeness requirements of Sections 10322(d) and (e) of these Regulations shall be considered incomplete, and shall be disqualified from receiving a reservation of Tax Credits during the cycle in which the application was determined incomplete.

(d) Issuer determination of Credit. The issuer of the bonds may determine the Federal Tax Credit amount, with said determination verified by the Committee and submitted with the application. The issuer may request the Committee determine the Credit amount by including such request in the application.

(e) Additional application requirements. Applications submitted pursuant to this Section shall provide the following additional information:

(1) the name, phone number and contact person of the bond issuer; and,

(2) verification provided by the bond issuer of the availability of the bond financing, the actual or estimated bond issuance date, and the actual or estimated percentage of aggregate basis (including land) financed or to be financed by the bonds, and a certification provided by a third-party tax professional as to the expected or actual aggregate basis (including land) financed by the proceeds of tax exempt bonds;

(3) the name, phone number and contact person of any entity providing credit enhancement and the type of enhancement provided.

(f) Application evaluation. To receive a reservation of Tax Credits, applications submitted under this Section shall be evaluated, pursuant to IRC Section 42, H & S Code Sections 50199.4 through 50199.22, R & T Code Sections 12206, 17058, and 23610.5, and these regulations to determine if: eligible, by meeting all program eligibility requirements; complete, which includes meeting all basic threshold requirements; and financially feasible.

(g) Basic thresholds. An application shall be determined to be complete by demonstration of meeting the following basic threshold requirements. All basic thresholds shall be met at the time the application is filed through a presentation of conclusive, documented evidence to the Executive Director's satisfaction. Further, in order to be eligible to be considered for Tax Credits under these regulations, the general partner(s) and management companies must not have any significant outstanding noncompliance matters relating to the tenant files or physical conditions at any Tax Credit properties in California, and any application submitted by an applicant with significant outstanding compliance matters will not be considered until the Committee has received evidence satisfactory to it that those matters have been resolved.

(1) Housing need and demand. Applicants shall provide evidence that the type of housing proposed, including proposed rent levels, is needed and affordable to the targeted population within the community in which it is located. Evidence shall be conclusive, and include the most recent documentation available (prepared within one year of the application date). Evidence of housing need and demand shall include;

(A) evidence of public housing waiting lists by bedroom size and tenant type, if available, from the local housing authority; and,

(B) a market study as described in Section 10322(h)(10) of these regulations, which provides evidence that: the items set forth in Section 10325(f)(1)(B) have been met for the proposed tax-exempt bond project.

Market studies will be assessed thoroughly. Meeting the requirements of Section 10325(f)(1)(B) is essential, but because other elements of the market study will also be considered, meeting those requirements in Section 10325(f)(1)(B) will not in itself show adequate need and demand for a proposed project or ensure approval of a given project.

(2) Demonstrated site control. Applicants shall provide evidence that the subject property is, and will remain within the control of the applicant from the time of application submission as set forth in Section 10325(f)(2).

(3) Local approvals and Zoning. Applicants shall provide evidence that the project, as proposed, is zoned for the intended use and has obtained all applicable local land use approvals which allow the discretion of local elected officials to be applied. Applicants requesting competitive state credits shall provide this evidence at the time the application is filed, except that an appeal period may run 30 days beyond the application due date, in which case the applicant must provide proof that either no appeals were filed, or that any appeals filed during that time period were resolved within that 30-day period and the project is ready to proceed. Examples of such approvals include, but are not limited to, general plan amendments, rezonings, conditional use permits. Notwithstanding the first sentence of this subsection, applicants need not have obtained design review approval at the time of application. The Committee may require, as evidence to meet this requirement, submission of a Committee-provided form letter to be signed by an appropriate local government planning official of the applicable local jurisdiction.

(4) Financial feasibility. Applicants shall provide the financing plan for the proposed project consistent with Section 10325(f)(5).

(5) Sponsor characteristics. Applicants shall provide evidence that as a Development Team, proposed project participants possess the knowledge, skills, experience and financial capacity to successfully develop, own and operate the proposed project. The Committee shall, in its sole discretion, determine if any of the evidence provided shall disqualify the applicant from participating in the Tax Credit Programs, or if additional Development Team members need be added to appropriately perform all program requirements. General partners and management companies lacking documented experience with Section 42 requirements using the minimum scoring standards at Section 10325(c)(1)(A) and (B) shall be required to complete training as prescribed by CTCAC per Section 10325(c)(1) prior to a project's placing in service. The minimum scoring standards referenced herein shall not be obtained through the two (2) point category of "a housing tax credit certification examination of a nationally recognized housing tax credit compliance entity on a list maintained by the Committee to satisfy minimum management company experience requirements for an incoming management agent" established at Section 10325(c)(1). Applicants need not submit the third-party public accountant certification that the projects have maintained a positive operating cash flow.

The State Tax Credit allocation pursuant to subsection (g)(1)(B) of Sections 12206, 17058, and 23610.5 of the Revenue and Taxation Code received by individuals, entities, affiliates, and related entities is limited to no more than thirty-three percent (33%) of any amount established per application review period as described in Section 10326(c) of these Regulations. This limitation is applicable to a project applicant, developer, sponsor, owner, general partner, and to parent companies, principals of entities, and family members. For the purposes of this section, related or non-arm's length relationships are further defined as those having control or joint control over an entity, having significant influence over an entity, or participating as key management of an entity. Related entity disclosure is required at the time of application. This 33% limit is not applicable for reservations of State Tax Credits made after the month of May in each calendar year.

(6) Minimum construction standards. Applicants shall adhere to minimum construction standards as set forth in Section 10325(f)(7).

(7) Minimum Rehabilitation Project Costs. Projects involving rehabilitation of existing buildings shall be required to complete, at a minimum, the higher of:

(A) $15,000 in hard construction costs per unit; or

(B) 20% of the adjusted basis of the building pursuant to IRC Section 42(e)(3)(A)(ii) (l).

(8)

(A) Existing tax credit projects applying for additional tax credits for acquisition and/or rehabilitation (i.e., resyndication) shall maintain the rents and income targeting levels in the existing regulatory contract for the duration of the new regulatory contract. If the project has exhibited negative cash flow for at least each of the last three years or within the next five years will lose a rental or operating subsidy that was factored into the project's initial feasibility, the Executive Director may alter this requirement, provided that the new rents and income targeting levels shall be as low as possible to maintain project feasibility. In addition, the Executive Director may approve a reduction in the number of units for purposes of unrestricting a manager's unit, adding or increasing service or community space, or for adding bathrooms and kitchens to SRO units, provided that the existing rent and income targeting remain proportional.

(B) If the regulatory agreement for an existing tax credit project applying for a new reservation of tax credits for acquisition and/or rehabilitation (i.e., resyndication) contains a requirement to provide service amenities, even if that requirement has expired, the project shall provide a similar or greater level of services for a period of at least 15 years under the new regulatory agreement. A project obtaining maximum CDLAC points for services shall be deemed to have met this requirement. If the project has exhibited cash flow of less than $20,000 for at least each of the last three years, has no hard debt and fails to break even in year 15 with services, or within the next five years will lose a rental or operating subsidy that was factored into the project's initial feasibility, the Executive Director may alter this requirement, provided that the service expenditures shall be the maximum that project feasibility allows.

(C) For existing tax credit projects applying for a new reservation of tax credits for acquisition and/or rehabilitation (i.e., resyndication), the pre-rehabilitation reserve study in the CNA shall demonstrate a rehabilitation need of at least $5,000 per unit over the first three years. Projects for which the Executive Director has waived the requirements of Section 10320(b)(4) and projects with ten years or less remaining on the CTCAC regulatory agreement are exempt from this requirement.

(9) A non-competitive project that includes Low-Income Units targeted at greater than 60% AMI shall have average targeting that does not exceed 60% AMI. A competitive project that includes Low-Income Units targeted at greater than 60% AMI shall have average targeting that does not exceed 50% AMI. Projects electing the average income federal set-aside must choose targeting in 10% increments of Area Median Income (i.e. 20% AMI, 30% AMI, 40% AMI, etc.)

A project with a tax credit reservation dated prior to, or a submitted application pending as of, March 26, 2018 may, with the discretionary approval of the Executive Director, revise its targeting prior to the recordation of the regulatory agreement to include Low-Income Units targeted at greater than 60% AMI only to increase the number of Low-Income Units or to accommodate existing over-income tenants, provided that the average targeting does not exceed 60% AMI for non-competitive projects or 50% AMI for competitive projects.

A project including Low-Income Units targeted at greater than 60% AMI shall make the "Yes" election on line 8b of the IRS Form 8609.

(h) Reserved.

(i) Tax-exempt bond reservations. Reservations of Tax Credits shall be subject to conditions as described in this Section and applicable statutes. Reservations of Tax Credits shall be conditioned upon the Committee's receipt of the reservation fee described in Section 10335 and an executed reservation letter bearing the applicant's signature accepting the reservation within twenty (20) calendar days of the Committee's notice to the applicant of the reservation, except that Hybrid projects and simultaneous phased projects as defined in Section 10327(c)(2)(C) shall submit the acceptance of the reservation for the first application within five (5) business days of the Committee's notice to the applicant of the reservation for the corresponding second application.

(j) Additional conditions on reservations. The following additional conditions shall apply to reservations of Tax Credits pursuant to this Section:

(1) Bonds issued. Bonds shall be issued within the time limit specified by CDLAC, if applicable; and,

(2) Projects shall maintain at least 10% of the total Low-Income Units at rents affordable to tenants earning 50% or less of the Area Median Income, and shall maintain a minimum 30 year affordability period.

(3) Projects proposing the rehabilitation of existing structures shall provide CTCAC with an updated development timetable by December 31 of the year following the year the project received its reservation of Tax Credits.

(i) The report shall include the actual placed-in-service date or the anticipated placed-in-service date for the last building in the project and the date the project achieved full occupancy. The report shall detail the causes for any change from the original date.

(ii) Projects proposing new construction shall provide CTCAC with an updated development timetable by December 31 of the second year following the year the project received its reservation of Tax Credits. The update shall include the actual placed-in-service date for the last building in the project and the date that the project achieved full occupancy; or the date the project is anticipated to achieve full occupancy.

Other conditions, including cancellation, disqualification and other sanctions imposed by the Committee in furtherance of the purposes of the Credit programs.

(4) Projects intended for eventual tenant homeownership must submit, at application, evidence of a financially feasible program, incorporating, among other items, an exit strategy, home ownership counseling, funds to be set aside to assist tenants in the purchase of units, and a plan for conversion of the facility to home ownership at the end of the initial 15-year compliance period. In such a case, the regulatory agreement will contain provisions for the enforcement of such covenants.

(k) Placed-in-service. Upon completion of construction of the proposed project, the applicant shall submit documentation required by Section 10322(i).

1. New section filed 8-19-97; operative 2-18-97 pursuant to Health and Safety Code section 50199.17 (Register 97, No. 34).
2. Editorial correction of subsection (g)(6)(B) (Register 98, No. 30).
3. Amendment of subsection (f), repealer and new subsection (g)(3), and amendment of subsection (g)(6)(G) filed 7-21-98; operative 11-20-97 and 12-11-97 pursuant to Health and Safety Code section 50199.17 (Register 98, No. 30).
4. New subsections (g)(1)(D)-(E) and (g)(6)(H) filed 7-26-99; operative 6-3-99 pursuant to Health and Safety Code section 50199.17 (Register 99, No. 31).
5. Readoption of emergency action filed 7-26-99, operative 6-3-99; filed 4-3-2000 as an emergency; operative 10-12-99 pursuant to Health and Safety Code section 50199.17 (Register 2000, No. 14).
6. Readoption of emergency action filed 4-3-2000, operative 10-12-99; filed 4-3-2000 as an emergency; operative 2-9-2000 pursuant to Health and Safety Code section 50199.17, with amendment of section (Register 2000, No. 14).
7. Emergency readoption without change filed 9-22-2000 of an action originally filed 4-3-2000; operative 6-9-2000 pursuant to Health and Safety Code section 50199.17 (Register 2000, No. 38).
8. Emergency readoption without change filed 10-23-2000 of an action originally filed 4-3-2000; operative 9-27-2000 pursuant to Health and Safety Code section 50199.17 (Register 2000, No. 43).
9. Emergency amendment effective pursuant to Health and Safety Code section 50199.17 upon adoption by the Committee on February 16, 2001, filed with the Secretary of State on March 5, 2001 (Register 2001, No. 10). EDITOR'S NOTE: On December 20, 2000, the Committee adopted and made effective an emergency amendment to an earlier version of this regulation; this amendment was superseded by the February 16, 2001 amendment. The December 20, 2000 amendment was filed with the Secretary of State on March 5, 2001; it was not printed in the California Code of Regulations.
10. Emergency readoption without change filed 11-19-2001 of an action most recently filed 3-5-2001; operative 9-17-2001 pursuant to Health and Safety Code section 50199.17 (Register 2001, No. 47).
11. Emergency adoption effective pursuant to Health and Safety Code section 50199.17 upon adoption by the Committee on March 19, 2003, filed with the Secretary of State on 5-8-2003 (Register 2003, No. 19). EDITOR'S NOTE: These March 19, 2003 emergency regulations supersede prior emergency regulations adopted and made effective by the Committee on January 29, 2003. The January 29 emergency regulations were filed with the Secretary of State on May 8, 2003, but were never printed in the California Code of Regulations.
12. Emergency adoption effective pursuant to Health and Safety Code section 50199.17 upon adoption by the Committee on February 18, 2004, filed with the Secretary of State on 4-26-2004. These February 18, 2004 emergency regulations supersede prior emergency regulations (Register 2004, No. 18).
13. Emergency adoption effective pursuant to Health and Safety Code section 50199.17 upon adoption by the Committee on June 16, 2004, filed with the Secretary of State on 7-19-2004. These June 16, 2004 emergency regulations supersede prior emergency regulations (Register 2004, No. 30).
14. Emergency adoption effective pursuant to Health and Safety Code section 50199.17 upon adoption by the Committee on October 5, 2004, filed with the Secretary of State on 12-16-2004. These October 5, 2004 emergency regulations supersede prior emergency regulations (Register 2004, No. 51).
15. Emergency adoption effective pursuant to Health and Safety Code section 50199.17 upon adoption by the Committee on February 16, 2005, filed with the Secretary of State on 4-4-2005. These February 16, 2005 emergency regulations supersede prior emergency regulations (Register 2005, No. 14).
16. Emergency readoption of action adopted by the Committee 2-16-2005 and filed with the Secretary of State 4-4-2005; refiled 11-1-2005; readopted by the Committee and effective 9-28-2005 pursuant to Health and Safety Code section 50199.17 (Register 2005, No. 44).
17. Emergency adoption filed 3-23-2006; conclusively presumed to be an emergency and effective upon adoption by the Committee on 1-18-2006 pursuant to Health and Safety Code section 50199.17(c) and (d). This filing supercedes prior emergency regulations and is exempt from the Administrative Procedure Act except as provided in Health and Safety Code section 50199.17 (a) and (b) (Register 2006, No. 12).
18. New section replacing prior emergency adoption filed 7-22-2010; operative 2-17-2010. Submitted to OAL for printing only pursuant to Health and Safety Code section 50199.17 (Register 2010, No. 30).
19. Amendment of subsection (e)(2) filed 4-18-2011; operative date of the amendments is immediately upon adoption by the committee pursuant to Health and Safety Code section 50199.17(c) (Register 2011, No. 16).
20. Amendment of subsections (g)(1)(B) and (g)(4)-(5) filed 3-19-2013; operative upon adoption by the California Tax Credit Allocation Committee on 1-23-2013 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for printing only (Register 2013, No. 12).
21. Amendment of subsection (g)(1)(B), including repealer of subsections (g)(1)(B)(i)-(iv) filed 7-22-2013; operative upon adoption by the Tax Credit Allocation Committee on 5-15-2013 pursuant to Health and Safety Code section 50199.17. Submitted to OAL for printing only (Register 2013, No. 30).
22. Amendment of subsections (g)(2)(A)(i), (g)(2)(B), (g)(5), (j)(3) and (k) filed 3-28-2014; operative upon adoption by the California Tax Credit Allocation Committee on 1-29-2014 pursuant to Health and Safety Code section 50199.77(c). Submitted to OAL for printing only (Register 2014, No. 13).
23. Amendment of subsection (g)(2), repealer of subsections (g)(2)(A)-(B), amendment of subsections (g)(3) and (g)(7)(A), new subsection (g)(8) and amendment of subsections (h) and (j)(1) filed 12-28-2015; operative upon adoption by the Tax Credit Allocation Committee on 10-21-2015 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to Health and Safety Code section 50199.17 (Register 2016, No. 1).
24. Amendment of subsections (g)(5) and (g)(5)(B), repealer of subsections (g)(5)(B)(i)-(v), redesignation of subsection (g)(8) as subsection (g)(8)(A) and new subsections (g)(8)(B) and (j)(5) filed 2-9-2017; operative upon adoption by the Tax Credit Allocation Committee on 12-14-2016 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to Health and Safety Code section 50199.17(c) (Register 2017, No. 6).
25. Amendment of subsections (g)(3) and (g)(5), new subsection (g)(8)(C) and amendment of subsection (j)(3) filed 2-22-2018; operative upon adoption by the Tax Credit Allocation Committee on 12-13-2017 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to Health and Safety Code section 50199.17 (Register 2018, No. 8).
26. New subsection (g)(9) filed 7-9-2018; operative upon adoption by the Tax Credit Allocation Committee 5-16-2018 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for printing only pursuant to Health and Safety Code section 50199.17 (Register 2018, No. 28).
27. Amendment of subsection (g)(9) filed 2-7-2019; operative upon adoption by the California Tax Credit Allocation Committee on 12-12-2018 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to pursuant to Health and Safety Code section 50199.17 (Register 2019, No. 6).
28. Amendment of subsection (a), new subsections (b)(1)-(2), amendment of subsections (c) and (g)(5), repealer of subsections (g)(5)(A)-(B) and amendment of subsection (g)(9) filed 12-23-2019; operative upon adoption by the committee on 10-28-2019 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to Health and Safety Code section 50199.17 (Register 2019, No. 52).
29. Amendment of subsections (a)-(c) and (g)(9), repealer of subsections (h) and (j)(1), subsection renumbering, amendment of newly designated subsections (j)(2)-(3) and amendment of NOTE filed 2-26-2021; operative upon adoption by the California Tax Credit Allocation Committee on 12-20-2020 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to Health and Safety Code section 50199.17 (Register 2021, No. 9).
30. Amendment of subsection (b)(1) and new subsections (b)(1)(A)-(F) filed 8-8-2022; operative upon adoption by the California Tax Credit Allocation Committee on 7-20-2022 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to Health and Safety Code section 50199.17 (Register 2022, No. 32).
31. Amendment of subsections (b)(1), (e)(2), (g)(5) and (j)(4) filed 3-13-2023; operative upon adoption by the California Tax Credit Allocation Committee on 1-18-2023 pursuant to Health and Safety Code section 50199.17. Submitted to OAL for filing and printing only pursuant to Government Code section 11343.8 (Register 2023, No. 11).
32. Amendment of subsection (i) filed 6-21-2023; operative upon adoption by the California Tax Credit Allocation Committee on 5-10-2023 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to Government Code section 11343.8 (Register 2023, No. 25).

Note: Authority cited: Section 50199.17, Health and Safety Code. Reference: Sections 12206, 17058 and 23610.5, Revenue and Taxation Code; and Sections 50199.4, 50199.5, 50199.6, 50199.7, 50199.8, 50199.9, 50199.10, 50199.11, 50199.12, 50199.13, 50199.14, 50199.15, 50199.16, 50199.17, 50199.18, 50199.20, 50199.21 and 50199.22, Health and Safety Code.

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