Cook Bill’s 60% Rent Test Starts In 2028 For Existing Complexes

The text as introduced · 2,969 words

By: Cook
S.B. No. 2767

A BILL TO BE ENTITLED

AN ACT

relating to public facility corporations.

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

SECTION 1. Section 303.041, Local Government Code, is

amended by adding Subsection (e) to read as follows:

(e) Notwithstanding Subsections (a)(3) and (d), a

corporation may not convey, assign, or transfer a tax exemption

granted under this subchapter to another entity unless

substantially all of the assets of the taxable entity are conveyed,

assigned, or transferred in the same transaction.

SECTION 2. Section 303.0421, Local Government Code, is

amended by amending Subsection (b) and adding Subsections (g-1) and

(j) 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 and 303.0426 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 each taxing unit [ 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 ] a 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 ] that was occupied at the time of acquisition or was

occupied at any time within the two-year period preceding the date

of the acquisition :

(A) at least 10 percent of the units in the

development are reserved for occupancy as lower income housing

units, as defined under Section 303.0425; at least 40 percent of the

units in the development are reserved for occupancy as moderate

income housing units, as defined under Section 303.0425; and not

less than 15 percent of the total gross cost of acquiring the

[ existing ] development, as shown in the settlement statement

related to the acquisition , 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 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 at least 25

percent of the units in the development are reserved for occupancy

as moderate income housing units, as defined under Section 303.0425

[ 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 ] is dated within six months of the

corporation 's approval of the development ;

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

development, the corporation or corporation's sponsor makes a good

faith determination based on the underwriting assessment that

[ (i) for an occupied multifamily

residential development acquired by the 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 ] in the same tax year if the

property did not have the income restrictions and did not have an

exemption from those taxes under Section 303.042(c):

(A) for occupied developments acquired by the

corporation, for each of the third, fourth, and fifth tax years

after the date of acquisition; and

(B) for all other developments, for each of the

second, third, and fourth tax years after the development first

becomes occupied by one or more tenants while owned 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 ]

(8) [ (B) ] the corporation publishes on its Internet

website a copy of the underwriting assessment described by

Paragraph (A) Subdivision (6).

(g-1) This subsection and Subsections (f) and (g) expire

December 31, 2027.

(j) A corporation or a sponsor of a corporation may not

accept a payment from a public facility user or developer in

exchange for the corporation's or sponsor's participation in a

multifamily residential development unless the corporation or

sponsor obtains approval for the payment from each taxing unit in

which the development is to be located.

SECTION 3. Sections 303.0421(h) and 303.0421(i), Local

Government Code, are repealed.

SECTION 4. Chapter 303, Local Government Code, is amended

by adding Section 303.0422 to read as follows:

Sec. 303.0422. RENT REDUCTION REQUIREMENTS FOR BENEFICIAL

TAX TREATMENT RELATING TO CERTAIN MULTIFAMILY RESIDENTIAL

DEVELOPMENTS.

(a) This section does not apply to a multifamily 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;and

(3) receives financial assistance administered under

Subchapter 2306, Government Code.

(b) An exemption under Section 303.042(c) does not apply in

a tax year to a multifamily residential development if the

difference in the rent charged for the income-restricted

residential units in the development in the immediately prior tax

year and the estimated maximum market rents that could be charged

for those units without the rent or income restrictions in such tax

year, as reported in the audit under Section 303.0426, is less than

60 percent of the amount of the ad valorem taxes that would have

been imposed on the property in the same prior tax year if the

property did not have the income restrictions and did not have an

exemption from those taxes under Section 303.042(c):

(1) beginning with the first tax year after the tax

year in which the development first becomes occupied by one or more

residential tenants;

(2) notwithstanding Subdivision (1), for an existing

multifamily residential development that is acquired by the

corporation, beginning with the third tax year after the tax year

that the corporation acquires the development; and

(3) notwithstanding Subdivisions (1) and (2), for a

multifamily residential development owned by the corporation as of

September 1, 2025, beginning with the 2028 tax year.

SECTION 5. Section The heading to Section 303.0426, Local

Government Code, is amended to read as follows:

Sec. 303.0426. AUDIT REQUIREMENTS APPLICABLE TO ALL [ FOR

CERTAIN ] MULTIFAMILY RESIDENTIAL DEVELOPMENTS.

SECTION 6. Sections 303.0426(b), (c), (d), (e), (f), and

(g), Local Government Code, are amended to read as follows:

(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 , 303.0422, 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 , 303.0422 and

303.0425 , if applicable .

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

indicates noncompliance with Sections 303.0421 , 303.0422, and

303.0425 as described by Subsection (c)(3) , a public facility user:

(1) must be given:

(A) written notice from the department or

appropriate appraisal district that:

(i) is provided not later than the 45th day

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

(ii) specifies the reasons for

noncompliance;

(iii) specifies the reason for

noncompliance with Section 303.0425:

(a) contains at least one option for a corrective action to

resolve the noncompliance; and

(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 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 7. 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 ALL 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 8. Section 392.066, Local Government Code, is

amended by adding Subsection (f) to read as follows:

(f) An authority that creates a public facility corporation

under Chapter 303 must submit to the Texas Department of Housing and

Community Affairs for each year that the corporation remains in

operation a certification providing:

(1) the name of the corporation;

(2) the names of all the developments owned by an

authority;

(3) the names of all subsidiaries of an authority;

(4) the names of any private partners involved in the

development;

(5) the areas in which the corporation operates; and

(6) any other information required by the department.

SECTION 9. (a) This Act applies only to a tax imposed for a

tax year beginning after the effective date of this Act.

(b) Sections 303.003 and 303.0421, Local Government Code,

as amended by this Act, apply only to a multifamily residential

development that is approved on or after the effective date of this

Act by a public facility corporation or the sponsor of a public

facility corporation. A multifamily residential development that

was approved by a public facility corporation or the sponsor of a

public facility corporation before the effective date of this Act

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

approved by the corporation or sponsor, and the former law is

continued in effect for that purpose.

(c) Notwithstanding subsection (b), Subdivision (1) of

Subsection 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.

(d) Section 303.0422, Local Government Code, as added 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.

(e) 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.

(f) 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.

(g) Section 303.041(e), Local Government Code, as added by

this Act, applies only to the conveyance, assignment, or transfer

of an exemption that occurs on or after the effective date of this

Act.

(h) Section 303.0421(b), Local Government Code, as amended

by this Act, Section 303.0421(j), Local Government Code, as added

by this Act, and Section 303.0425(b-1), Local Government Code, as

added by this Act, apply only to a multifamily residential

development that is approved on or after the effective date of this

Act by a public facility corporation or the sponsor of a public

facility corporation, in accordance with Chapter 303, Local

Government Code. A multifamily residential development that was

approved by a public facility corporation or the sponsor of a public

facility corporation before the effective date of this Act is

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

approved by the corporation or sponsor, and the former law is

continued in effect for that purpose.

SECTION 10. This Act takes effect September 1, 2025.