By: Gates H.B. No. 1590
A BILL TO BE ENTITLED
AN ACT
relating to multifamily residential developments owned by public
facility corporations.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 303.003, Local Government Code, is
amended by adding Subdivisions (7-a) and (7-b) and amending
Subdivision (11) to read as follows:
(7-a) "Rent" means any recurring fee or charge a
tenant is required to pay as a condition of occupancy, including but
not limited to, a fee or charge for the use of a common area or
facility reasonably associated with a multifamily residential
rental property. "Rent" does not include fees and charges for
services or amenities which are optional for a tenant, such as pet
fees and fees for storage or covered parking.
(7-b) "Rent reduction" means the difference between
(i) the total rent charged during the tax year for the
income-restricted units in the multifamily residential
development, and (ii) the maximum total rent that could be charged
during the tax year for the same units in the absence of any rent or
income restrictions on such units.
(11) "Sponsor" means a municipality, county, [school
district,] housing authority or special district that causes a
corporation to be created to act in accordance with this chapter.
SECTION 2. 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) for a development not covered under Subdivision
(5), 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] 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:
(i) 25 percent of the units in the
development 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
(ii) 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;
(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 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).
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;
(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 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, 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(b)(2),
303.0421(b)(5), 303.0422, 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 6. 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 7. (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, 303.0422 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.
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.