SB 539 - HB 753
FISCAL NOTE
Fiscal Review Committee
Tennessee General Assembly
February 22, 2025
Fiscal Analyst: Justin Billingsley | Email: justin.billingsley@capitol.tn.gov | Phone: 615-741-2564
SB 539 - HB 753
SUMMARY OF BILL: Establishes a process for assessment and valuation of low-income
housing properties for property tax purposes. Applies to residential property and projects developed
on or after January 1, 2026.
FISCAL IMPACT:
OTHER FISCAL IMPACT
The amount of total recurring foregone local revenue beginning in FY26-27 cannot be quantified
with certainty but is reasonably estimated to exceed $100,000.
Assumptions:
• The proposed legislation will create an assessment process for multi-unit rental housing that
receive a federal, state, or local incentive based on low-income renter restrictions.
• A government incentive includes: a low-income housing tax credit (LIHTC); financing
derived from exempt facility bonds for qualified residential rental projects; a low-interest
loan under the National Housing Act or the Housing Act of 1949; a rent subsidy; a guaranteed
loan; a grant; a guarantee; or an agreement entered into for payments in lieu of ad valorem
taxes.
• The LIHTC program provides a credit against federal income tax liability each year for 10
years for owners and investors in low-income rental housing. The amount of tax credits is
based on reasonable costs of development and the number of low-income units.
• The proposed assessment process requires an assessor to use a specific methodology for
valuing low-income housing that includes a capitalization rate based on the risks associated
with such housing and that excludes the amount of LIHTCs or other state or federal
subsidies each property received.
• Beginning in tax year 2026, the Comptroller of the Treasury’s (COT’s) Division of Property
Assessments would be required to determine the capitalization rate in consultation with the
Tennessee Housing Development Agency (THDA) and to publish the rate range on its
website as soon as practicable after the rates become available.
• The COT and THDA will absorb the additional responsibility with existing staff and
resources; any fiscal impact to state government is estimated to be not significant.
• The proposed legislation takes effect January 1, 2026 and applies to low-income housing
projects developed on or after that date.
SB 539 - HB 753 2
• Excluding LIHTCs from the valuation of new low-income housing properties will result in
a recurring increase in foregone property tax revenue beginning in FY26-27.
• According to the THDA, nine low-income subsidized housing projects were awarded in
late 2023 and anticipated to begin development in 2024.
• Pursuant to State Board of Equalization Rule 0600-10-.03-(3), taxpayers of LIHTC
properties are given two options for valuing the subsidies:
o A decreasing term method using the present value of all future tax credits for each
of the unused tax credit years remaining; or
o A leveling method using the average annual present value of the credits.
• Based on information provided by the COT:
o The decreasing term method resulted in a total present value of $11,451,700 for the
nine projects with a property tax levy of $152,089;
▪ Under the proposed language, there would have been an increase in
foregone local revenue of $152,089 in FY24-25 that would steadily decrease
over each of the subsequent nine fiscal years;
o The leveling method resulted in a net present value of the subsidies of $8,215,690
with a property tax levy of $109,203; and
▪ Under the proposed legislation, there would have been an increase in
foregone local revenue of $109,203 in FY24-25 and each of the subsequent
nine fiscal years.
• Beginning in FY26-27, the fiscal impact of the proposed legislation will compound every
year for a 10-year period as new projects are added each year; in the eleventh year, the first-
year projects will drop off and new ones will be added. This trend will continue in
subsequent years.
• Each year’s fiscal impact will depend on the total amount of LIHTCs awarded to new
projects and the respective property tax rates applied to those properties, which cannot be
predicted.
• Therefore, the total amount of recurring foregone local revenue beginning in FY26-27 and
recurring in subsequent years cannot be estimated with certainty but is assumed to exceed
$100,000.
CERTIFICATION:
The information contained herein is true and correct to the best of my knowledge.
Bojan Savic, Executive Director