Tax-Exempt Complexes Fail Audits, Stay Compliant If Notice Is Late

The text as introduced · 1,890 words

By: Gates
H.B. No. 3534

A BILL TO BE ENTITLED

AN ACT

relating to multifamily residential developments financed, owned,

or operated by public facility corporations.

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

SECTION 1. Section 303.0421(b), Local Government Code, is

amended to read as follows:

(b) Notwithstanding Section 303.042(c) and subject to

Subsections (c) and (d) of this section, an exemption under Section

303.042(c) for a multifamily residential development to which

Subsection (a) applies is available only if:

(1) the requirements under Sections [ Section ]

303.0425, 303.0426 and 303.0427 are met;

(2) at least:

(A) 10 percent of the units in the multifamily

residential development are reserved for occupancy as lower income

housing units, as defined under Section 303.0425; and

(B) 40 percent of the units in the multifamily

residential development are reserved for occupancy as moderate

income housing units, as defined under Section 303.0425;

(3) the corporation delivers to the presiding officer

of the governing body of each taxing unit in which the development

is to be located written notice of the development, at least 30 days

before the date:

(A) the corporation takes action to approve a new

multifamily residential development or the acquisition of an

occupied multifamily residential development; and

(B) of any public hearing required to be held

under this section;

(4) if a majority of the members of the board are not

elected officials, 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;

(5) for an occupied multifamily residential

development that is acquired by a corporation and not otherwise

subject to a land use restriction agreement under Section 2306.185,

Government Code:

(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, as defined under

Section 303.0425, 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; and

(6) not less than 30 days before final approval of the

development:

(A) the corporation or corporation's sponsor

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 public facility user, an underwriting assessment of

the proposed development that allows the corporation to make a good

faith determination that:

(i) for an occupied multifamily residential

development acquired by a corporation, the total annual amount of

rent reduction on the income-restricted 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 under Section 303.042(c) for the second,

third, and fourth years after the date of acquisition by the

corporation; and

(ii) for a newly constructed multifamily

residential development, the development would not be feasible

without the participation of the corporation; and

(B) the corporation publishes on its Internet

website a copy of the underwriting assessment described by

Paragraph (A).

SECTION 2. Section 303.0426, Local Government Code, is

amended by adding Subsection (a-1) and (e-1) and amending Sections

303.0426(b), (c), (d), (e), (f), and (g) to read as follows:

(a-1) This section does not apply to a multifamily

residential development that:

(1) has at least 20 percent of its residential

units reserved for public housing units;

(2) participates in the Rental Housing

Assistance Demonstration program administered by the United States

Department of Housing and Urban Development;

(3) receives financial assistance administered

under Subchapter 2306, Government Code.

(b) A public facility user of any [ a ] multifamily

residential development claiming an exemption under Section

303.042(c) [ and to which Section 303.0421 applies ] 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 public facility

user 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 public facility user and

development is in compliance with Sections 303.0421 and 303.0425 ,

if applicable ; 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 public facility user that has an

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

comptroller, the applicable corporation, the governing body of the

corporation's sponsor, and, if the corporation's sponsor is a

housing authority, the elected officials who appointed the housing

authority's governing board; and

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

comply with the requirements in Sections 303.0421 and 303.0425 , if

applicable .

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

indicates noncompliance with Sections 303.0421(b)(2),

303.0421(b)(5), or 303.0425 :

(1) a public facility user[ : ] [ (1) ]must be given[ :

(A) ] written notice from the department or appropriate appraisal

district that:

(A) [ (i) ]is provided not later than the 60th

[ 45th ] day after the date a report has been submitted under

Subsection (b);

(B) [ (ii) ]specifies the reasons for

noncompliance;

(C) [ (iii) ] for noncompliance with Section

303.0425:

(i) contains at least one option for a

corrective action to resolve the noncompliance; and

(ii) [ (iv) ] informs the public facility

user that failure to resolve the noncompliance will result in the

loss of an exemption under Section 303.042(c); and

(2) If the audit report indicates noncompliance for

noncompliance with Section 303.0425, a public facility user must

also be given:

(A) [ (B) ] 60 days after the date notice is received

under [ this ] subdivision (1) , to resolve the matter that is the

subject of the notice; and

(B) [ (C) ] if a matter that is the subject of a

notice provided under [ this ]subdivision (1) is not resolved to the

satisfaction of the department and the appropriate appraisal

district during the period provided by Paragraph (A) [ (B) ], a

second notice that informs the public facility user of the loss of

the exemption under Section 303.042(c) due to noncompliance with

Section [ Sections 303.0421 and ] 303.0425 . [ ; and (2) is considered

to be incompliance with Sections 303.0421 and 303.0425 if notice

under Subdivision (1)(A) is not provided as specified by

Subparagraph (i) of that paragraph. ]

(e) An exemption under Section 303.042(c) does not apply to

a multifamily residential development owned by a public facility

corporation for a tax year in which :

(1) the department determines that the public facility

user for the development is not in compliance with the audit report

requirements of Subsection (b); or

(2) based on the audit conducted under Subsection (b),

the department complies with the applicable notice requirements in

Subsection (d) and:

(i) the department determines that public

facility user or development is not in compliance with the

requirements of Section 303.0425 and the matter is not resolved to

the satisfaction of the department within 60 days after the date

notice is received under Subsection (d); or

(ii) the department determines that the

development is not in compliance with the requirements of Sections

303.0421(b)(2) or 303.0421(b)(5). [ a multifamily residential

development that is owned by a public facility 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

requirements of Section 303.0421 or 303.0425. ]

(e-1) Notwithstanding Subsection (e), a public facility

user and development is considered to be in compliance with:

(1) Section 303.0425 to the extent the applicable

notice required under Subsections (d)(1) and (d)(2) is not

provided; and

(2) Sections 303.0421 (b)(2) and (b)(5) to the extent

the applicable notice required under Subsection (d)(1) is not

provided.

(f) Notwithstanding Subsection (g), the [ 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

corporation; or

(2) the date a new multifamily residential development

first becomes occupied by one or more tenants.

(g) An audit report required by this section is [ Subsequent

audit reports following the issuance of the initial audit report

under Subsection (f) are ] due not later than June 1 of each year.

SECTION 3. Subchapter B, Chapter 303, Local Government

Code, is amended by adding Section 303.0427 to read as follows:

Sec. 303.0427. ADDITIONAL REQUIREMENT FOR BENEFICIAL TAX

TREATMENT APPLICABLE TO CERTAIN MULTIFAMILY RESIDENTIAL

DEVELOPMENTS. (a) In this section, "public facility user" has the

meaning assigned by Section 303.0425.

(b) A multifamily residential development owned by a public

facility corporation to which Section 303.0426 applies is

ineligible for an exemption under Section 303.042(c) unless the

corporation, the corporation's sponsor, or public facility user for

the development submits to the Texas Department of Housing and

Community Affairs and to the chief appraiser for each appraisal

district in which the exemption is sought a one-time exemption

application on a form promulgated by the comptroller.

SECTION 4. (a) Section 303.0421(b), as amended by this Act,

applies to all multifamily residential developments, regardless of

the date they were acquired or approved by a public facility

corporation or sponsor of the public facility corporation.

(b) Notwithstanding Section 10(d)(1), Chapter 1169 (H.B.

2071), Acts of the 88th Legislature, Regular Session, 2023, Section

303.0426, Local Government Code, as amended by this Act, applies to

all multifamily residential developments claiming an exemption

under Section 303.042(c), Local Government Code, regardless of when

the developments were approved or acquired and regardless of

whether Sections 303.0421 and 303.0425, Local Government Code,

apply to those developments.

(b) Section 303.0427, Local Government Code, as added by

this Act, applies to all multifamily residential developments

claiming an exemption under Section 303.042(c), Local Government

Code, regardless of when the developments were approved or acquired

and regardless of whether Sections 303.0421 and 303.0425, Local

Government Code, apply to those developments.

SECTION 6. 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.