Gates Bill Ties Housing Corporation Tax Breaks To Rent Caps

The text as introduced · 4,228 words

89R2225 JAM-D

By: Gates
H.B. No. 21

A BILL TO BE ENTITLED

AN ACT

relating to housing finance corporations; authorizing a fee.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 394.004, Local Government Code, is

amended to read as follows:

Sec. 394.004. APPLICATION OF CHAPTER TO CERTAIN RESIDENTIAL

DEVELOPMENTS. This chapter applies only to a residential

development that, in accordance with the requirements of this

chapter, [ at least 90 percent of which ] is occupied [ for use ] by or

is intended to be occupied by persons of low and moderate income

whose adjusted gross income, together with the adjusted gross

income of all persons who intend to reside with those persons in one

dwelling unit, did not for the preceding tax year exceed the maximum

amount constituting moderate income under the housing finance

corporation's rules, resolutions relating to the issuance of bonds,

or financing documents relating to the issuance of bonds.

SECTION 2. Subchapter A, Chapter 394, Local Government

Code, is amended by adding Section 394.0045 to read as follows:

Sec. 394.0045. APPLICABILITY OF OPEN MEETINGS AND OPEN

RECORDS LAWS. (a) Chapter 551, Government Code, applies to actions

and proceedings under this chapter.

(b) Chapter 552, Government Code, applies to all records of

a housing finance corporation.

SECTION 3. The heading to Section 394.031, Local Government

Code, is amended to read as follows:

Sec. 394.031. EXERCISE OF POWERS ; AREA OF OPERATION .

SECTION 4. Section 394.031, Local Government Code, is

amended by adding Subsections (c) and (d) to read as follows:

(c) Subject to Subsection (d), the area in which a housing

finance corporation may exercise its powers is limited to:

(1) for a housing finance corporation sponsored by a

municipality under Section 394.011, the jurisdictional boundaries

of the municipality that sponsored the corporation;

(2) for a housing finance corporation sponsored by a

county under Section 394.011, the unincorporated areas of the

county that sponsored the corporation; or

(3) for a housing finance corporation sponsored by

more than one local government under Section 394.012:

(A) the jurisdictional boundaries of each

municipal sponsor of the corporation; and

(B) the unincorporated areas of each county

sponsor of the corporation.

(d) A housing finance corporation may exercise its powers

outside an area described by Subsection (c) only if a resolution or

order, as applicable, approving that exercise of power in the

outside area is adopted by the governing body of each sponsoring

local government and by the governing bodies of:

(1) each municipality that contains any part of the

outside area in which the corporation proposes to operate; and

(2) if proposing to operate in the unincorporated area

of a county, each county that contains any part of the outside area

in which the corporation proposes to operate.

SECTION 5. Sections 394.032(a) and (e), Local Government

Code, are amended to read as follows:

(a) Subject to the limitations of Sections 394.031(c) and

(d), a [ A ] housing finance corporation may:

(1) make contracts and other instruments as necessary

or convenient to the exercise of powers under this chapter;

(2) incur liabilities;

(3) borrow money at rates determined by the

corporation;

(4) issue notes, bonds, and other obligations; and

(5) secure any of its obligations by the mortgage or

pledge of all or part of the corporation's property, franchises,

and income.

(e) A housing finance corporation may delegate to the Texas

Department of Housing and Community Affairs the authority to act on

its behalf in the financing, refinancing, acquisition, leasing,

ownership, improvement, and disposal of home mortgages or

residential developments, within [ and outside ] the jurisdiction of

the housing finance corporation, including its authority to issue

bonds for those purposes.

SECTION 6. Section 394.037, Local Government Code, is

amended by adding Subsection (a-1) to read as follows:

(a-1) Bonds issued under this chapter for a purpose

described by Subsection (a) may be issued only to finance or support

residential developments or homes that are located:

(1) inside the boundaries of the sponsoring local

government, if the bonds are issued by a housing finance

corporation formed under Section 394.011; or

(2) inside the boundaries of at least one sponsoring

local government, if the bonds are issued by a joint housing finance

corporation formed under Section 394.012.

SECTION 7. Section 394.039, Local Government Code, is

amended to read as follows:

Sec. 394.039. SPECIFIC POWERS RELATING TO FINANCIAL AND

PROPERTY TRANSACTIONS. A housing finance corporation may:

(1) lend money for its corporate purposes, invest and

reinvest its funds, and take and hold real or personal property as

security for the payment of the loaned or invested funds;

(2) mortgage, pledge, or grant security interests in

any residential development, home mortgage, note, or other property

in favor of the holders of bonds issued for those items;

(3) purchase, receive, lease, or otherwise acquire,

own, hold, improve, use, or deal in and with real or personal

property or interests in that property, [ wherever the property is

located, ] as required by the purposes of the corporation or as

donated to the corporation; and

(4) sell, convey, mortgage, pledge, lease, exchange,

transfer, and otherwise dispose of all or part of its property and

assets.

SECTION 8. Section 394.9025(b), Local Government Code, is

amended to read as follows:

(b) Following a public hearing by the governing body of the

applicable local government as described by Section 394.037(a-1) , a

housing finance corporation may issue bonds to finance a

multifamily residential development to be owned by the housing

finance corporation in accordance with the requirements of this

chapter [ Section 394.004 ] if the housing finance corporation

receives approval of the governing body of that [ the ] local

government.

SECTION 9. Subchapter Z, Chapter 394, Local Government

Code, is amended by adding Sections 394.9026 and 394.9027 to read as

follows:

Sec. 394.9026. ADDITIONAL CONDITIONS FOR BENEFICIAL

PROPERTY-BASED TAX AND FEE TREATMENT RELATING TO CERTAIN

MULTIFAMILY RESIDENTIAL DEVELOPMENTS. (a) In this section:

(1) "Housing choice voucher program" means the housing

choice voucher program under Section 8, United States Housing Act

of 1937 (42 U.S.C. Section 1437f).

(2) "Lower income housing unit" means a residential

unit reserved for occupancy by an individual or family earning not

more than 60 percent of the area median income, adjusted for family

size, as defined by the United States Department of Housing and

Urban Development.

(3) "Moderate income housing unit" means a residential

unit reserved for occupancy by an individual or family earning not

more than 80 percent of the area median income, adjusted for family

size, as defined by the United States Department of Housing and

Urban Development.

(4) "Property-based exemption" means an exemption

from the taxes and fees imposed with respect to property owned by a

housing finance corporation or with respect to income from that

property.

(5) "Rent" means any recurring fee or charge a tenant

is required to pay as a condition of occupancy, including a fee or

charge for the use of a common area or facility reasonably

associated with residential rental property.

(b) This section does not apply to a multifamily residential

development that is the recipient of a low income housing tax credit

allocated under Subchapter DD, Chapter 2306, Government Code.

(c) Subject to Subsection (g), a property-based exemption

under Section 394.905(a) for a multifamily residential development

is available only if the multifamily residential development

satisfies the other requirements of this chapter and if:

(1) at least:

(A) 10 percent of the units in the multifamily

residential development are reserved for occupancy as lower income

housing units; and

(B) 40 percent of the units in the multifamily

residential development are reserved for occupancy as moderate

income housing units;

(2) for a multifamily residential development that is

acquired by a housing finance corporation, the development is

occupied or was occupied within the two-year period preceding the

date of the acquisition and is not otherwise subject to a land use

restriction agreement under Section 2306.185, Government Code,

and:

(A) not less than 15 percent of the total gross

cost of the existing development, as shown in the settlement

statement, is expended on rehabilitating, renovating,

reconstructing, or repairing the development, with initial

expenditures and construction activities:

(i) beginning not later than the first

anniversary of the date of the acquisition; and

(ii) finishing not later than the third

anniversary of the date of the acquisition; or

(B) at least 25 percent of the units are reserved

for occupancy as lower income housing units and the development is

approved by the governing body of the municipality in which the

development is located or, if the development is not located in a

municipality, the county in which the development is located;

(3) not less than 30 days before the date of final

approval of the development:

(A) the housing finance corporation or a

sponsoring local government of the corporation conducts, or obtains

from a professional entity that has experience underwriting

affordable multifamily residential developments and does not have a

financial interest in the applicable development, developer, or

housing finance corporation, an underwriting assessment of the

proposed development that allows the housing finance corporation to

make a good faith determination that, for an occupied multifamily

residential development acquired by a housing finance corporation

or for a newly constructed multifamily residential development

owned by a housing finance corporation, the total annual amount of

rent reduction on the income-restricted residential units provided

at the development will be not less than 60 percent of the estimated

amount of the annual ad valorem taxes that would be imposed on the

property without an exemption from those taxes under Section

394.905(a) for the second, third, and fourth years after the date of

acquisition by the housing finance corporation or the date the

certificate of occupancy is issued for the development, as

applicable; and

(B) the housing finance corporation publishes on

its Internet website a copy of the underwriting assessment

described by Paragraph (A);

(4) the percentage of lower and moderate income

housing units reserved in each category of income-restricted

residential units in the development, based on the number of

bedrooms per unit, is the same as the percentage of each category of

income-restricted residential units reserved in the development as

a whole;

(5) the monthly rent charged per unit does not exceed:

(A) for a lower income housing unit, 30 percent

of 60 percent of the area median income, adjusted for family size,

as defined by the United States Department of Housing and Urban

Development; or

(B) for a moderate income housing unit, 30

percent of 80 percent of the area median income, adjusted for family

size, as defined by the United States Department of Housing and

Urban Development;

(6) the housing finance corporation that owns the

development does not:

(A) refuse to rent a residential unit to an

individual or family because the individual or family participates

in the housing choice voucher program; or

(B) use a financial or minimum income standard

that requires an individual or family participating in the housing

choice voucher program to have a monthly income of more than 250

percent of the individual's or family's share of the total monthly

rent payable for a unit;

(7) the housing finance corporation publishes on its

Internet website information about the development's:

(A) compliance with the conditions prescribed by

this section; and

(B) policies regarding tenant participation in

the housing choice voucher program;

(8) the housing finance corporation that owns the

development:

(A) affirmatively markets available residential

units directly to individuals and families participating in the

housing choice voucher program; and

(B) notifies local housing authorities of the

development's acceptance of tenants in the housing choice voucher

program; and

(9) each lease agreement for a residential unit in the

development provides that:

(A) the landlord may not retaliate against the

tenant or the tenant's guests by taking an action because the tenant

established, attempted to establish, or participated in a tenant

organization;

(B) the landlord may only choose to not renew the

lease if the tenant:

(i) committed one or more substantial

violations of the lease;

(ii) failed to provide required information

on the income, composition, or eligibility of the tenant's

household; or

(iii) committed repeated minor violations

of the lease that disrupt the livability of the property, adversely

affect the health and safety of any person or the right to quiet

enjoyment of the leased premises and related development

facilities, interfere with the management of the development, or

have an adverse financial effect on the development, including the

failure of the tenant to pay rent in a timely manner; and

(C) to not renew the lease, the landlord must

serve a written notice of proposed nonrenewal on the tenant not

later than the 30th day before the effective date of nonrenewal.

(d) In calculating the income of an individual or family for

a lower or moderate income housing unit, the housing finance

corporation must use the definition of annual income described in

24 C.F.R. Section 5.609, as implemented by the United States

Department of Housing and Urban Development. If the income of a

tenant exceeds an applicable limit at the time of the renewal of a

lease agreement for a residential unit, the provisions of Section

42(g)(2)(D), Internal Revenue Code of 1986, apply in determining

whether the unit may still qualify as a lower or moderate income

housing unit.

(e) A housing finance corporation may require an individual

or family participating in the housing choice voucher program to

pay the difference between the monthly rent for the applicable unit

and the amount of the monthly voucher if the amount of the voucher

is less than the rent.

(f) A tenant may not waive the protections provided by

Subsection (c)(9). A housing finance corporation may adopt tenant

protections that are more protective of tenants than the tenant

protections provided by Subsection (c)(9).

(g) Notwithstanding Subsection (c) and Section

394.905(a)(1), a multifamily residential development that is

acquired by a housing finance corporation, that is occupied or was

occupied within the two-year period preceding the date of the

acquisition, and that is not otherwise subject to a land use

restriction agreement under Section 2306.185, Government Code, is

eligible for a property-based exemption under Section 394.905(a)

for:

(1) the one-year period following the date of the

acquisition, regardless of whether the development complies with

the conditions prescribed by Subsection (c) and Section

394.905(a)(1); and

(2) a year following the year described by Subdivision

(1) only if the development comes into compliance with the

conditions prescribed by Subsection (c) and Section 394.905(a)(1)

not later than the first anniversary of the date of the acquisition.

Sec. 394.9027. AUDIT REQUIREMENTS FOR CERTAIN MULTIFAMILY

RESIDENTIAL DEVELOPMENTS. (a) In this section:

(1) "Department" means the Texas Department of Housing

and Community Affairs.

(2) "Property-based exemption" has the meaning

assigned by Section 394.9026.

(b) A housing finance corporation that claims a

property-based exemption for a multifamily residential

development under Section 394.905(a) must annually submit to the

department and the chief appraiser of the appraisal district in

which the development is located an audit report for a compliance

audit, prepared at the expense of the housing finance corporation

and conducted by an independent auditor or compliance expert with

an established history of providing similar audits on housing

compliance matters, to:

(1) determine whether the housing finance corporation

is in compliance with the conditions imposed for the exemption by

Sections 394.905(a) and 394.9026; and

(2) identify the difference in the rent charged for

income-restricted residential units and the estimated maximum

market rents that could be charged for those units without the rent

or income restrictions.

(c) Not later than the 60th day after the date of receipt of

the audit conducted under Subsection (b), the department shall

examine the audit report and publish a report summarizing the

findings of the audit. The report must:

(1) be made available on the department's Internet

website;

(2) be issued to a housing finance corporation that

has an interest in a development that is the subject of an audit,

the comptroller, and the governing body of the housing finance

corporation's sponsoring local government or governments; and

(3) describe in detail the nature of any failure to

comply with the conditions imposed for the property-based exemption

by Section 394.905(a) or 394.9026.

(d) If an audit report submitted under Subsection (b)

indicates noncompliance with Section 394.905(a) or 394.9026, a

housing finance corporation:

(1) must be given:

(A) written notice from the department or

appropriate appraisal district that:

(i) is provided not later than the 90th day

after the date a report has been submitted under Subsection (b);

(ii) specifies the reasons for

noncompliance;

(iii) contains at least one option for a

corrective action to resolve the noncompliance; and

(iv) informs the housing finance

corporation that failure to resolve the noncompliance will result

in the loss of the property-based exemption under Section

394.905(a);

(B) a period of 60 days after the date notice is

received under this subdivision to resolve the matter that is the

subject of the notice; and

(C) if a matter that is the subject of a notice

provided under this subdivision is not resolved to the satisfaction

of the department and appropriate taxing authority during the

period provided by Paragraph (B), a second notice that informs the

housing finance corporation of the loss of the property-based

exemption due to noncompliance with Section 394.905(a) or 394.9026,

as applicable; and

(2) is considered to be in compliance with Sections

394.905(a) and 394.9026 if notice under Subdivision (1)(A) is not

provided as specified by Subparagraph (i) of that paragraph.

(e) Except as provided by Section 394.9026(g), a

property-based exemption under Section 394.905(a) does not apply

for a tax year in which a multifamily residential development that

is owned by a housing finance corporation created under this

chapter is determined by the department based on an audit conducted

under Subsection (b) to not be in compliance with the conditions

imposed for that exemption by Sections 394.905(a) and 394.9026.

(f) The initial audit report required by Subsection (b) is

due not later than June 1 of the year following the first

anniversary of:

(1) the date of acquisition for an occupied

multifamily residential development that is acquired by a housing

finance corporation; or

(2) the date a new multifamily residential development

first becomes occupied by one or more tenants.

(g) Subsequent audit reports following the issuance of the

initial audit report under Subsection (f) are due not later than

June 1 of each year.

(h) An independent auditor or compliance expert may not

prepare an audit under Subsection (b) for more than three

consecutive years for the same housing finance corporation. After

the third consecutive audit, the independent auditor or compliance

expert may prepare an audit only after the second anniversary of the

preparation of the third consecutive audit.

(i) The department:

(1) shall adopt forms and reporting standards for the

auditing process;

(2) may charge a fee for the submission of an audit

report under this section in a reasonable amount necessary to cover

the expenses of administering this section; and

(3) may adopt rules necessary to implement this

section.

(j) An audit conducted under Subsection (b) is subject to

disclosure under Chapter 552, Government Code, except that

information containing tenant names, unit numbers, or other tenant

identifying information may be redacted.

SECTION 10. Section 394.903, Local Government Code, is

amended to read as follows:

Sec. 394.903. TRANSFER [ LOCATION ] OF [ RESIDENTIAL

DEVELOPMENT; ] RESIDENTIAL DEVELOPMENT SITES. [ (a) A residential

development covered by this chapter must be located within the

local government.

[ (b) ] A [ The ] local government may transfer any residential

development site to a housing finance corporation by sale or lease.

The governing body of the local government may authorize the

transfer by resolution without submitting the issue to the voters

and without regard to the requirements, restrictions, limitations,

or other provisions contained in any other general, special, or

local law. The site location is subject to the requirements of this

chapter [ may be located wholly or partly inside or outside the local

government ].

SECTION 11. Section 394.905, Local Government Code, is

amended to read as follows:

Sec. 394.905. EXEMPTION FROM TAXES AND FEES [ TAXATION ].

(a) Notwithstanding any other law, the [ The ] housing finance

corporation, all property owned by it, the income from the

property, all bonds issued by it, the income from the bonds, and the

transfer of the bonds are exempt, as public property used for public

purposes, from license fees, recording fees, and all other taxes

imposed by this state or any political subdivision of this state

only if:

(1) for an exemption from taxes and fees imposed with

respect to property owned by the housing finance corporation:

(A) any applicable audit report requirements

provided by Section 394.9027 are satisfied, other than those

imposed on a multifamily residential development under the

circumstances described by Section 394.9026(g);

(B) the property is located in an area in which

the housing finance corporation is authorized to exercise its

powers as described by Section 394.031(c) or the exemption is

approved by each applicable governing body described by Section

394.031(d); and

(C) if an exemption from ad valorem taxation is

claimed, the housing finance corporation submits to the Texas

Department of Housing and Community Affairs and to the county tax

assessor-collector for each appraisal district in which the

exemption is sought a one-time exemption application on a form

promulgated by the comptroller; or

(2) the requirements provided by Section 394.037(a-1)

are satisfied, for an exemption from taxes and fees imposed with

respect to bonds issued by the housing finance corporation, the

income from those bonds, and the transfer of those bonds .

(b) The corporation is exempt from the franchise tax imposed

by Chapter 171, Tax Code, only if the corporation is exempted by

that chapter.

SECTION 12. Section 394.005, Local Government Code, is

repealed.

SECTION 13. (a) Sections 394.031(c) and (d), Local

Government Code, as added by this Act, apply only to the exercise of

power by a housing finance corporation made on or after the

effective date of this Act. An exercise of power made before the

effective date of this Act is governed by the law in effect on the

date the power was exercised, and the former law is continued in

effect for that purpose.

(b) Sections 394.037(a-1) and 394.905(a)(2), Local

Government Code, as added by this Act, apply only to bonds issued on

or after the effective date of this Act. Bonds issued before the

effective date of this Act are governed by the law in effect on the

date the bonds were issued, and the former law is continued in

effect for that purpose.

(c) Subject to Subsections (d), (e), and (f) of this

section, Sections 394.905(a)(1) and 394.9026, Local Government

Code, as added by this Act, apply only to a tax or fee imposed for a

tax year or calendar year, respectively, that begins on or after the

effective date of this Act.

(d) Subject to Subsections (e) and (f) of this section,

Sections 394.905(a)(1) and 394.9026, Local Government Code, as

added by this Act, apply only to a residential development that is

acquired by a housing finance corporation on or after the effective

date of this Act. A residential development that was acquired by a

housing finance corporation before the effective date of this Act

is governed by the law in effect on the date the development was

acquired by the corporation, and the former law is continued in

effect for that purpose.

(e) Section 394.9026(g), Local Government Code, as added by

this Act, applies only to an occupied multifamily residential

development that is acquired by a housing finance corporation on or

after the effective date of this Act. An occupied multifamily

residential development that is acquired by a housing finance

corporation before the effective date of this Act is governed by the

law in effect on the date the development was acquired by the

housing finance corporation, and the former law is continued in

effect for that purpose.

(f) Sections 394.9026(c)(6), (7), (8), and (9) and (f),

Local Government Code, as added by this Act, apply to a multifamily

residential development owned by a housing finance corporation on

or after the effective date of this Act, regardless of the date the

development was acquired by the housing finance corporation.

(g) Notwithstanding Section 394.9027(b) or (f), Local

Government Code, as added by this Act, the initial audit report

required to be submitted under Section 394.9027(b), Local

Government Code, as added by this Act, for a multifamily

residential development that was acquired by a housing finance

corporation before the effective date of this Act must be submitted

by the later of:

(1) the date established by Section 394.9027(f), Local

Government Code, as added by this Act; or

(2) June 1, 2026.

(h) Not later than January 1, 2026, the Texas Department of

Housing and Community Affairs shall adopt rules necessary to

implement Section 394.9027(i), Local Government Code, as added by

this Act.

SECTION 14. This Act takes effect immediately if it

receives a vote of two-thirds of all the members elected to each

house, as provided by Section 39, Article III, Texas Constitution.

If this Act does not receive the vote necessary for immediate

effect, this Act takes effect September 1, 2025.