Assembly Bill A8794

                                BILL NUMBER:A8794

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  OR  GENERAL IDEA OF BILL:  In order to facilitate the preserva-
tion  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  SPECIFIC  PROVISIONS:   Conveyances involving real property
financed with federal low-in-come 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 bene-
fit 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  afforda-
ble rental housing created in the U.S. today. Preservation of this port-
folio  -  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 exercis-
ing 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 bene-
fit 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 build-
ing 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 inves-
tors. 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  assist-
ing in maintaining the continued affordability of these projects.

PRIOR LEGISLATIVE HISTORY: New Bill

FISCAL IMPLICATIONS: None to the State

EFFECTIVE DATE:  This act shall take effect immediately