SB 49 — AN ACT INCREASING OPPORTUNITIES FOR WORKFORCE HOUSING DEVELOPMENT IN THE STATE.

49 amount of such funding for any such program or [programs] project in excess of five hundred thousand dollars for any fiscal year.

(k)SB49 The/ ConnecticutFile HousingNo. Finance Authority, with theapproval of the Commissioner of Revenue Services, shall adopt written procedures in accordance with section 1-121 to implement the provisions of this section.

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180 (k) The Connecticut Housing Finance Authority, with theapproval of the Commissioner of Revenue Services, shall adopt written procedures in accordance with section 1-121 to implement the provisions of this section.

(l) Vouchers issued or reserved by the Department of Housing under the provisions of this section prior to July 1, 1995, shall be valid on and after July 1, 1995, to the same extent as they would be valid under the LCOprovisions 3271of {\\PRDFS1\SCOUSERS\FORZANOF\WS\2021SB-0004911this ofsection 16in R02-SB.docxeffect }on CommitteeJune Bill30, No.1995.

49 provisions of this section in effect on June 30, 1995.

(a)SB49 Except/ asFile providedNo. in subsection (h) of section 29-252a and the State Building Code adopted pursuant to subsection (a) of section 29- 252, after October 1, 1970, no building or structure shall be constructed or altered until an application has been filed with the building official and a permit issued.

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180 (a) Except as provided in subsection (h) of section 29-252a and the State Building Code adopted pursuant to subsection (a) of section 29- 252, after October 1, 1970, no building or structure shall be constructed or altered until an application has been filed with the building official and a permit issued.

LCO(b) 3271On {\\PRDFS1\SCOUSERS\FORZANOF\WS\2021SB-00012and after July 1, 1999, the building official shall assess an educationfeeoneachbuildingpermitapplication.Duringthefiscalyear commencing July 1, 1999, the amount of 16such R02-SB.docxfee }shall Committeebe Billsixteen No.cents per one thousand dollars of construction value as declared on the building permit application and the building official shall remit such fees quarterly to the Department of Administrative Services, for deposit in the General Fund.

49Upon (b)deposit Onin and after July 1, 1999, the buildingGeneral officialFund, shall assess an educationfeeoneachbuildingpermitapplication.Duringthefiscalyear commencing July 1, 1999, the amount of such feefees shall be sixteencredited centsto perthe oneappropriation thousandto dollars of construction value as declared on the buildingDepartment permitof applicationAdministrative Services and the building official shall remitbe suchused feesfor quarterly to the Departmentcode oftraining Administrativeand Services,SB49 for/ depositFile inNo. the General Fund.

Upon180 deposit12 inSB49 theFile GeneralNo. Fund, the amount of such fees shall be credited to the appropriation to the Department of Administrative Services and shall be used for the code training and educational programs established pursuant to section 29-251c and the educational programs required in subsections (a) and (b) of section 29- 262.

180 educational programs established pursuant to section 29-251c and the educational programs required in subsections (a) and (b) of section 29- 262.

(e) Notwithstanding any municipal charter, home rule ordinance or special act, no municipality shall collect any fee for a building permit LCOapplication 3271for {\\PRDFS1\SCOUSERS\FORZANOF\WS\2021SB-0013the construction or substantial rehabilitation of 16(1) R02-SB.docxan }eligibleworkforcehousingopportunitydevelopmentproject,asdefined Committeein Billsection No.1 of this act, or (2) a workforce housing development project, as defined in section 8-395, as amended by this act.

49 application for the construction or substantial rehabilitation of (1) an eligibleworkforcehousingopportunitydevelopmentproject,asdefined in section 1 of this act, or (2) a workforce housing development project, as defined in section 8-395, as amended by this act.

(NEW) (Effective October 1, 2021, and applicable to assessment years commencing on or after October 1, 2021) The legislative body of any municipality or, in a municipality where the legislative body is a town meeting, the board of selectmen, may, by ordinance, exempt from real property tax any workforce housing development project, as defined in section8-395SB49 ofthegeneralstatutes,asamendedby/ thisact,totheextentFile ofNo. seventy per cent of its valuation for purposes of assessment in each of the seven full assessment years following the assessment year in which the construction or substantial rehabilitation, as defined in section 8-395 of the general statutes, as amended by this act, is completed.

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180 section8-395 ofthegeneralstatutes,asamendedby thisact,totheextent of seventy per cent of its valuation for purposes of assessment in each of the seven full assessment years following the assessment year in which the construction or substantial rehabilitation, as defined in section 8-395 of the general statutes, as amended by this act, is completed.

LCOThe 3271amount {\\PRDFS1\SCOUSERS\FORZANOF\WS\2021SB-0014of the grant payable to each municipality in any year in accordance with this section shall be reduced proportionately in the event that the total of 16such R02-SB.docxgrants }in Committeesuch Billyear No.exceeds the amount appropriated for the purposes of this section with respect to such year.

49 The amount of the grant payable to each municipality in any year in accordance with this section shall be reduced proportionately in the event that the total of such grants in such year exceeds the amount appropriated for the purposes of this section with respect to such year.

(NEW) (Effective October 1, 2021) The Connecticut Housing Finance Authority shall develop and administer a program of mortgage assistance for (1) developers for the construction or substantial rehabilitation of eligible workforce housing opportunity development projects, as defined in section 1 of this act, and (2) developers for the constructionSB49 or/ substantialFile rehabilitationNo. of workforce housing development projects, as defined in section 8-395 of the general statutes, as amended by this act.

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180 construction or substantial rehabilitation of workforce housing development projects, as defined in section 8-395 of the general statutes, as amended by this act.

Section 1 July 1, 2021 New section July 1, 2021 Sec.

2 July 1, 2021 12-63b Sec.

4 July 1, 2021 29-263 LCOSec. 3271 {\\PRDFS1\SCOUSERS\FORZANOF\WS\2021SB-000415 of 16 R02-SB.docx } Committee Bill No.

49 Sec.

8 from passage New section HSG Joint Favorable LCOSB49 3271/ {\\PRDFS1\SCOUSERS\FORZANOF\WS\2021SB-00049-File 16No. of 16 R02-SB.docx }

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180 The following Fiscal Impact Statement and Bill Analysis are prepared for the benefit of the members of the General Assembly, solely for purposes of information, summarization and explanation and do not represent the intent of the General Assembly or either chamber thereof for any purpose.

In general, fiscal impacts are based upon a variety of informational sources, including the analyst’s professional knowledge.

Whenever applicable, agency data is consulted as part of the analysis, however final products do not necessarily reflect an assessment from any specific department.

OFA Fiscal Note State Impact:

Agency Affected Fund-Effect FY 22 $ FY 23 $ Department of Housing GF - Cost Up to 168,200 50,000 State Comptroller - Fringe GF - Cost None 69,500 Benefits1 Department of Housing GF - Potential 100,000 None Cost Department of Revenue Services GF - Cost None Up to 75,000 Department of Revenue Services GF - Revenue None See Below Loss Policy & Mgmt., Off.

GF - Cost None See Below Note:

GF=General Fund Municipal Impact:

Municipalities Effect FY 22 $ FY 23 $ Various Municipalities Precludes None See Below Grand List Growth Various Municipalities Precludes None See Below Revenue Gain Explanation The bill, which establishes various state and local financial incentives for investing in and developing rental units set aside for designated populations and households, results in the state and municipal fiscal 1The fringe benefit costs for most state employees are budgeted centrally in accounts administered by the Comptroller.

The estimated active employee fringe benefit cost associated with most personnel changes is 41.3% of payroll in FY 22 and FY 23.

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180 impacts outlined below.

State Cost Impact Section1resultsinprogramadministrationcoststotheGeneralFund of up to $50,000 in FY 22 and of $237,700 in FY 23 for the Department of Housing (DOH) to establish a tax credit program for workforce housing opportunity developments.

As the DOH does not currently administer a tax credit program or have capacity within existing staff, the agency would require a new state program administrator (salary and fringe benefits of $122,100) and an additional associate accountant (salary and fringe benefits of $115,600) to operate the program beginning in FY 23.

The DOH is also required to adopt implementing regulations (presumably in FY 22) for which the agency typically contracts outside legal services at a cost of up to $50,000.

Section 1 also results in a one-time cost of up to $75,000 to the Department of Revenue Services for updates to the online Taxpayer Service Center in FY 23 only.

Section 8 requires the DOH to conduct a study on housing for apprentices and new employees in the towns where they work and report on it by January 1, 2022.

To the extent that the DOH lacks the capacity or expertise to conduct such a study in-house, there will be a one-time cost of approximately $100,000 in FY 22 to contract with a third-party to complete it.

State Revenue and Bonding Impacts Section 3 expands the CHFA's Housing Program Contribution tax credit program, but does not increase the existing $10 million annual aggregate credit cap.

This does not result in any fiscal impact as the program currently reaches the cap on an annual basis, and there is no cost to CHFA from this provision.

Section 7 requires the CHFA to create a new mortgage assistance program for certain developers.

Such programs are anticipated to be funded within the CHFA’s resources, which include a combination of SB49 / File No.

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180 tax-exempt private activity bonds and taxable market-rate bonds.

To the extent the new program extends the uses of the CHFA’s resources, there is some possibility of either reduced use of such resources for existing programs or of greater reliance on taxable bonds to increase overall resources available for the CHFA’s programs.

Borrowing through the use of taxable bonds is typically slightly more expensive than the issuance of tax-exempt bonds – it is anticipated that any increase in borrowing costs to the CHFA from additional use of taxable bonds would be passed on to assistance recipients.

Other mortgage assistance programs administered by the CHFA have been supported by General Obligation (GO) bonds.

The bill does not authorize new GO bond authorizations for this program, and outstanding bond authorizations for the CHFA do not appear applicable to the newly created program, so no change in General Fund debt service is anticipated from the bill.

Municipal Impact The bill precludes an increase in grand list growth in certain municipalities by establishing incentives for workforce housing opportunity development projects that reduce their potential property tax liability.

The bill:

1) effectively requires assessors to assess such projects at below market value, and 2) allows municipalities to partially exempt such projects from property taxes for seven assessment years following project completion.

Any impact would vary based on the value of such projects.

The bill requires the Office of Policy and Management to reimburse municipalities for 77% of the revenue loss they experience if they choose to fully exempt workforce housing developments.

This partially offsets any revenue loss municipalities experience as a result of the bill.

The bill also exempts these projects from building permit fees.

This precludes a revenue gain that municipalities otherwise would have experienced from collecting such fees.

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180 The Out Years The annualized ongoing cost impacts identified above would continue into the future subject to inflation.

Section 1 establishes a new tax credit against the personal income and corporation business taxes for individuals or entities making cash contributions to eligible developers constructing or rehabilitating eligible workforce housing opportunity development projects in federally designated opportunity zones.

This results in a revenue loss of up to $5 million annually beginning in FY 24.

2 Sources:

Department of Revenue Services Annual Report Fiscal Year 2019-2020 2Tax credit vouchers may be claimed against state corporation business and personal income taxes for taxable income years beginning in 2023;

it is anticipated that the timing of the claiming of credits would limit the revenue impact to FY 24 and beyond.

The bill caps the total amount of credits allowed per fiscal year at $5 million.

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180 OLR Bill Analysis SB 49 AN ACT INCREASING OPPORTUNITIES FOR WORKFORCE HOUSING DEVELOPMENT IN THE STATE.

SUMMARY This bill establishes various state and local financial incentives for individuals and businesses investing in and developing rental units set aside for designated workforce populations and low- and moderate- income households under these programs.

Specifically, the bill does the following:

1.

establishes a new tax credit against the personal income and corporation business taxes, administered by the Department of Housing (DOH), for individuals or entities making cash contributionsto eligible developersconstructing or rehabilitating eligible “workforce housing opportunity development projects” in federally designated opportunity zones (see BACKGROUND) (§ 1);

2.

expressly allows businesses making cash contributions to nonprofits developing eligible “workforce housing development projects,” including those in an opportunity zone, to qualify for tax credits under the Connecticut Housing Finance Authority’s (CHFA) Housing Program Contribution tax credit program (§ 3);

3.

requires municipal tax assessors to assess workforce housing opportunity development projects using the capitalization of net income method based on actual rent received for property tax assessment purposes (§§ 1 & 2);

4.

exempts both of these categories of workforce housing projects from building permit application fees (§§ 1 & 4);

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180 5.

allows municipalities to provide up to a seven-year, 70% property tax exemption for workforce housing development projects, offset by a 70% state grant in lieu of taxes (§§ 5–6);

6.

requires CHFA to develop and administer a mortgage assistance program for developers of both categories of these projects (§ 7);

and 7.

requires DOH to conduct a workforce housing study and report to the Housing Committee (§ 8).

The bill also makes technical and conforming changes.

EFFECTIVE DATE:

July 1, 2021, except for the (1) local option exemption, state grant in lieu of taxes, and CHFA mortgage assistance program provisions, which are effective October 1, 2021, and (2) DOH workforcehousing studyprovision,whichiseffectiveuponpassage;the local option exemption is applicable to assessment years beginning on or after October 1, 2021.

§ 1 — WORKFORCE HOUSING OPPORTUNITY DEVELOPMENT TAX CREDIT Administration The bill requires DOH to administer a new program providing tax credit vouchers to individuals or entities making cash contributions to eligible developers constructing or rehabilitating eligible housing projects in opportunity zones.

The department must begin accepting applications from eligible developers by January 1, 2023.

Under the bill, the DOH commissioner must determine the program’s additional eligibility criteria, certification conditions, and application guidelines.

The bill requires the commissioner to adopt regulations to implement the program.

Eligible Projects Under the bill, an eligible workforce housing opportunity development project is a project to build or substantially rehabilitate rental housing that is (1) located in an opportunity zone in the state and SB49 / File No.

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180 (2) partially designated for certain targeted residents (see “Rental Requirements”).

Additionally, the bill requires these projects, to the extent feasible, to incorporate renewable energy and be transit-oriented.

In the case of rehabilitation projects, the bill requires that (1) a building’s repairs, replacements, or improvements exceed 25% of the building’s value when rehabilitation is complete, or (2) the project replace two or more major components of the building (i.e., roof, wall, or floor structures;

plumbing, heating and air conditioning, or electrical systems;

and ceilings or foundations).

Eligible Developers The bill authorizes developers to apply to DOH, in the form and manner the commissioner prescribes, to be certified to receive credit- eligible cash investments under the program.

Under the bill, the following entities may qualify as eligible developers:

1.

nonprofits and business corporations incorporated in Connecticut and other business entities (i.e., partnerships, limited partnerships, limited liability partnerships, joint ventures, trusts, limited liability companies (LLC), or associations) that (a) construct, rehabilitate, own, or operate housing and (b) are either certified by DOH under the program or whose articles of incorporation or organizational documents, as applicable, have been approved by DOH in accordance with its regulations for the moderate rental housing or moderate cost program;

2.

municipal housing authorities (and the Connecticut Housing Authority, although it is no longer active);

and 3.

municipal developers.

Under the bill, a “municipal developer” is a municipality that has not established a housing authority;

it may be the municipality’s board of selectmen if the town meeting or representative town meeting authorized the board to act as the developer.

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180 Rental Requirements The bill requires that completed workforce housing opportunity development projects be rented as follows:

1.

50% of the units at market rate (i.e., the rate the property would most probably command on the open market based on current comparable rentals in the opportunity zone);

2.

40% of the units to a designated workforce population (as described below) at a rate of up to 20% of the prevailing rent of the opportunity zone in which the development is located (the bill does not specify how the prevailing rent is measured);

and 3.

10% of the units to low- and moderate-income households (i.e., those that lack the income to rent mixed income housing without financial assistance, as determined by the DOH commissioner) that also receive rental assistance through certain state programs or the U.S.

Department of Housing and Urban Development’s federal section 8 program.

Under the bill, the program must establish a method for selecting tenants who meet the income criteria that does not discriminate on the basis of race, creed, color, national origin, ancestry, sex, gender identity or expression, age, or physical or intellectual disability.

Designation of Workforce Population The bill requires that eligible developers receive municipal approval for proposed workforce housing opportunity development projects from zoning commissions and other applicable municipal agencies.

No later than 30 days after a municipality approves a project, its legislative body (or board of selectmen if its legislative body is a town meeting) must vote to designate the workforce population the project will serve.

The bill allows developers to make this designation if municipalities fail to do so within the given time limit.

Under the bill, the designated workforce population may include volunteer firefighters, teachers, police officers, emergency medical personnel, and any other professions working in the town where the project is located.

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180 Timeframe for Completion The bill requires eligible developers to (1) schedule the workforce housing opportunity development projects for completion within three years of DOH’s project approval and (2) submit quarterly progress reports and a final report to the DOH commissioner.

If a project is not completed within the three-year timeframe, or at any time if the DOH commissioner determines that it is unlikely to be completed, the bill allows the commissioner to ask the attorney general to reclaim any remaining contributions made by individuals and entities to the developer and reallocate the funds to another eligible project.

Tax Credits for Qualifying Contributions The bill requires the DOH commissioner to administer the tax credit vouchers, similar to CHFA’s existing Housing Contribution tax credit program, for individuals or entities that make a cash contribution of at least $250 to an eligible developer for the eligible projects described above.

The vouchers may be claimed against state corporation business and personal income taxes, except for the withholding tax, for taxable income years beginning in 2023 (presumably for tax years or income years beginning in 2023).

The Department of Revenue Services must grant the credits in the amount specified by DOH in the tax credit vouchers.

The bill caps the total amount of credits allowed per fiscal year at $5 million.

Taxpayers may claim the credits in the taxable income year in which they made the cash contribution and may carry unused credits forward or back for five years.

In the case of S corporations or entities treated as a partnership for federal tax purposes, the entity’s shareholders or partners may claim the credits.

If the entity is a single member LLC that is disregarded as an entity separate from its owner, only the owner may claim the credit.

§ 3 — CHFA’S HOUSING PROGRAM CONTRIBUTION TAX CREDIT The bill expressly makes “workforce housing development projects” a credit-eligible housing program under the Housing Program Contribution tax credit.

Under this program, CHFA administers tax SB49 / File No.

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180 credit vouchers for businesses that make cash contributions of at least $250 to nonprofits that develop, sponsor, or manage housing programs benefiting low- and moderate-income households.

The credits apply against various business taxes, including the insurance premiums, corporation business, and utility companies taxes.

Under the bill, “workforce housing development projects” are generally similar to the workforce housing opportunity projects described above, except that they are not limited to opportunity zones.

(It is unclear whether projects that meet the eligibility criteria for both programs would qualify for both credits for the same cash contributions.) Specifically, workforce housing development projects are to construct or substantially rehabilitate rental housing where:

1.

50% of the units are market rate units (i.e., the rate the unit would probably command on the open market based on comparable units in the same area);

2.

40% are rented to the workforce population designated by the developer, in consultation with the host municipality;

and 3.

10% are affordable housing (i.e., when households earning no more than the host municipality’s area median income, as determined by the U.S.

Department of Housing and Urban Development, spend 30% or less of their annual income on it).

Under the bill, “substantial rehabilitation” has the same definition as described above for workforce housing opportunity development projects.

An eligible “workforce housing opportunity development” project is also considered an eligible “workforce housing development” project.

By law, unchanged by the bill, the total amount of tax credits allowed to businesses under the program is capped at $10 million per fiscal year and $1 million of these credits must be set aside each year for workforce housing as defined in CHFA’s written procedures.

The bill also makes SB49 / File No.

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180 various conforming changes to the Housing Program Contribution tax credit.

§§ 1 & 2 — PROPERTY TAX ASSESSMENT FOR WORKFORCE HOUSING OPPORTUNITY DEVELOPMENT PROJECTS The bill requires assessors to determine the value of workforce housingopportunitydevelopmentprojectsforpropertytaxpurposesby using the capitalization of net income method based on actual rent received.

This means assessors must consider net rental income, rather than market rent for similar property, when determining the project’s gross potential income.

Under the capitalization of net income method, all else being equal, a property with a lower gross potential income will also have a lower valuation.

Under current law, assessors must consider three methods when assessing the fair market value of rental properties (with certain exceptions):

1.

replacement cost less depreciation, plus the land’s market value;

2.

capitalization of net income based on market rent for similar property;

and 3.

comparable sales.

For property tax assessment purposes, the bill treats workforce housing opportunity development projects the same as properties used solely for housing low- or moderate-income individuals and families located in municipalities that have chosen to abate property taxes on these properties (CGS §§ 8-215 & 8-216a).

§ 4 — BUILDING PERMIT FEE EXEMPTION The bill exempts both categories of workforce housing development projects defined under the bill (i.e., workforce housing development and workforce housing opportunity development projects) from all building permit application fees.

In doing so, it supersedes any municipal charters, home rule ordinances, and special acts.

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180 §§ 5 & 6 — LOCAL OPTION PROPERTY TAX EXEMPTION AND STATE REIMBURSEMENT The bill allows a municipality’s legislative body (or board of selectmen if the legislative body is a town meeting) to provide up to a seven-year, 70% property tax exemption to the workforce housing developmentprojectseligiblefortheHousingProgramContributiontax credit.

Under the bill, the property tax exemption may begin in the first full assessment year after the project’s construction or rehabilitation is complete.

Additionally, the bill requires the Office of Policy and Management (OPM) secretary, beginning in FY 24, to pay a state grant in lieu of taxes to municipalities that (1) provide this local option exemption and (2) submit an annual grant application to OPM, as OPM prescribes.

OPM must determine the amount due to these municipalities annually by January 1.

Under the bill, the grant in lieu of taxes equals 70% of the property taxes that would have been paid for the assessment year two years before the fiscal year in which the grant is paid (excluding exemptions for certain housing authority properties).

The grants are payable for a maximum of seven assessment years, beginning in FY 24, and may be reduced proportionately if the total of all grants in a fiscal year exceeds state appropriations for the grants.

§ 7 — CHFA MORTGAGE ASSISTANCE PROGRAM The bill requires CHFA to (1) develop and administer a mortgage assistance program for developers of both categories of workforce housing projects under the bill and (2) use any appropriate housing subsidies in providing this mortgage assistance.

§ 8 — DOH WORKFORCE HOUSING STUDY The bill requires DOH to conduct a study, within available appropriations, on ways to (1) increase housing options for apprentices and newly hired employees and (2) enable this population to live in the municipalities where they work.

Under the bill, the DOH commissioner SB49 / File No.

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180 must submit a report to the Housing Committee, including recommendations and legislation necessary for implementation, by January 1, 2022.

BACKGROUND Opportunity Zones The federal Opportunity Zone program, created as part of the 2017 federalTaxCutsandJobsAct(P.L.115-97),isdesignedtospureconomic development and job creation in distressed communities by providing federal tax benefits for private investments in the zones.

The program’s tax benefits are available to investors that reinvest gains earned on prior investments in a qualified opportunity zone fund that invests in zone businesses.

Investors may receive additional tax benefits if they hold their investments in the fund for at least five, seven, or 10 years.

Connecticut has 72 opportunity zones in 27 municipalities that were approved by the U.S.

Treasury Department in 2018.

COMMITTEE ACTION Housing Committee Joint Favorable Yea 15 Nay 0 (03/11/2021) SB49 / File No.

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