Relating to housing finance corporations; authorizing a fee.

89(R) SB 867 - Senate Committee Report version - Bill Text

By: Bettencourt, et al.

S.B. No. 867

(In the Senate - Filed January 22, 2025; February 13, 2025,

read first time and referred to Committee on Local Government;

May 5, 2025, reported adversely, with favorable Committee

Substitute by the following vote: Yeas 6, Nays 0; May 5, 2025, sent

to printer.)

COMMITTEE SUBSTITUTE FOR S.B. No. 867

By: Paxton

A BILL TO BE ENTITLED

AN ACT

relating to housing finance corporations; authorizing a fee.

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

SECTION 1. Section 394.004, Local Government Code, is

amended to read as follows:

Sec. 394.004. APPLICATION OF CHAPTER TO CERTAIN RESIDENTIAL

DEVELOPMENTS. This chapter applies only to a residential

development at least 90 percent of which is
occupied
[
for use
] by

or is intended to be occupied by persons of low and moderate income

whose adjusted gross income, together with the adjusted gross

income of all persons who intend to reside with those persons in one

dwelling unit, did not for the preceding tax year exceed the maximum

amount constituting moderate income under the housing finance

corporation's rules, resolutions relating to the issuance of bonds,

or financing documents relating to the issuance of bonds.

SECTION 2. Subchapter A, Chapter 394, Local Government

Code, is amended by adding Section 394.0045 to read as follows:

Sec.

394.0045.

APPLICABILITY OF OPEN MEETINGS AND OPEN

RECORDS LAWS.

(a)

Chapter 551, Government Code, applies to actions

and proceedings under this chapter.

(b)

Chapter 552, Government Code, applies to all records of

a housing finance corporation.

SECTION 3. Section 394.032(d), Local Government Code, is

amended to read as follows:

(d)
Subject to Sections 394.9026, 394.903(a), and

394.905(c), a
[
A
] housing finance corporation may enter into

contracts to perform services for any other housing finance

corporation or any individual or entity acting on behalf of any

other housing finance corporation or, with respect to residential

development, any housing authority, nonprofit enterprise, or

similar entity.

SECTION 4. Section 394.037, Local Government Code, is

amended by adding Subsection (a-1) to read as follows:

(a-1)

A housing finance corporation may only issue bonds

under this chapter for a purpose described by Subsection (a) to

finance or support a residential development or home that is

located or will be constructed

within the boundaries of the local

government that formed the corporation under Section 394.011 or

394.012.

SECTION 5. Section 394.039, Local Government Code, is

amended to read as follows:

Sec. 394.039. SPECIFIC POWERS RELATING TO FINANCIAL AND

PROPERTY TRANSACTIONS. A housing finance corporation may:

(1) lend money for its corporate purposes, invest and

reinvest its funds, and take and hold real or personal property as

security for the payment of the loaned or invested funds;

(2) mortgage, pledge, or grant security interests in

any residential development, home mortgage, note, or other property

in favor of the holders of bonds issued for those items;

(3)
subject to Sections 394.9026, 394.903(a), and

394.905(c),
purchase, receive, lease, or otherwise acquire, own,

hold, improve, use, or deal in and with real or personal property or

interests in that property, wherever the property is located, as

required by the purposes of the corporation or as donated to the

corporation; and

(4) sell, convey, mortgage, pledge, lease, exchange,

transfer, and otherwise dispose of all or part of its property and

assets.

SECTION 6. Section 394.9025, Local Government Code, is

amended to read as follows:

Sec. 394.9025. MULTIFAMILY RESIDENTIAL DEVELOPMENT. (a)

Following a public hearing, a housing finance corporation may
,

subject to the geographic limitations of Section 394.037(a-1),

issue bonds to finance a multifamily residential development to be

owned
, financed, or supported
by the housing finance corporation if

at least 50 percent of the units in the multifamily residential

development are reserved for occupancy by individuals and families

earning less than 80 percent of the area median family income.

(b) Following a public hearing by the governing body of the

applicable
local government, a housing finance corporation may
,

subject to the geographic limitations of Section 394.037(a-1),

issue bonds to finance a multifamily residential development to be

owned
, financed, or supported
by the housing finance corporation in

accordance with Section 394.004 if the housing finance corporation

receives approval of the governing body of the local government.

SECTION 7. Subchapter Z, Chapter 394, Local Government

Code, is amended by adding Sections 394.9026 and 394.9027 to read as

follows:

Sec.

394.9026.

ADDITIONAL CONDITIONS FOR BENEFICIAL AD

VALOREM TAX TREATMENT RELATING TO CERTAIN MULTIFAMILY RESIDENTIAL

DEVELOPMENTS. (a)

In this section:

(1)

"Housing choice voucher program" means the housing

choice voucher program under Section 8, United States Housing Act

of 1937 (42 U.S.C. Section 1437f).

(2)

"Housing finance corporation user" means a

public-private partnership entity or a developer or other private

entity that has an ownership interest or a leasehold or other

possessory interest in a multifamily residential development

owned, financed, or supported by a housing finance corporation.

(3)

"Lower income housing unit" means a residential

unit reserved for occupancy by an individual or family earning not

more than 60 percent of the area median income, adjusted for family

size, as defined by the United States Department of Housing and

Urban Development.

(4)

"Moderate income housing unit" means a residential

unit reserved for occupancy by an individual or family earning not

more than 80 percent of the area median income, adjusted for family

size, as defined by the United States Department of Housing and

Urban Development.

(5)

"Multifamily residential development" means any

residential development consisting of four or more residential

units intended for occupancy as rentals, regardless of whether the

units are attached or detached.

(6)

"Rent" means any recurring fee or charge a tenant

is required to pay as a condition of occupancy, including a fee or

charge for the use of a common area or facility reasonably

associated with residential rental property. The term does not

include fees and charges for services or amenities that are

optional for a tenant, such as pet fees and fees for storage or

covered parking.

(b)

This section does not apply to a multifamily residential

development that receives financial assistance administered under

Subchapter DD, Chapter 2306, Government Code.

(c)

Subject to Subsection (g), an ad valorem tax exemption

under Section 394.905 for a multifamily residential development

owned, financed, or supported by a housing finance corporation is

available only if the other requirements of this chapter are

satisfied and if:

(1) subject to Subdivision (2), at least:

(A)

10 percent of the units in the development

are reserved for occupancy as lower income housing units; and

(B)

40 percent of the units in the development

are reserved for occupancy as moderate income housing units;

(2)

for a development that is acquired by a housing

finance corporation and that is occupied at acquisition or was

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

of the acquisition:

(A) at least:

(i)

10 percent of the units in the

development are reserved for occupancy as lower income housing

units and at least 40 percent of the units in the development are

reserved for occupancy as moderate income housing units; and

(ii)

unless a resolution waiving this

requirement is received from the governing body of the local

government within the boundaries of which the development is

located, 15 percent of the total gross cost of 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:

(a)

beginning not later than the first

anniversary of the date of the acquisition; and

(b)

finishing not later than the third

anniversary of the date of the acquisition; or

(B)

the development is approved by the governing

body of the local government within the boundaries of which the

development is located and at least:

(i)

25 percent of the units are reserved for

occupancy as lower income housing units; and

(ii)

25 percent of the units are reserved

for occupancy as moderate income housing units;

(3)

the income-restricted residential units in the

development have the same access to community amenities and

programs as residential units that are not income-restricted;

(4)

the percentage of lower and moderate income

housing units reserved in each category of income-restricted

residential units in the development, based on the number of

bedrooms per unit, is the same as the percentage of each category of

income-restricted residential units reserved in the development as

a whole;

(5) the monthly rent charged per unit does not exceed:

(A)

for a lower income housing unit, 30 percent

of 60 percent of the area median income, adjusted for family size,

as defined by the United States Department of Housing and Urban

Development; or

(B)

for a moderate income housing unit, 30

percent of 80 percent of the area median income, adjusted for family

size, as defined by the United States Department of Housing and

Urban Development;

(6)

the housing finance corporation, the housing

finance corporation user, and the development, including any

individual or entity associated with or acting on behalf of the

corporation, user, or development, do not:

(A)

refuse to rent a residential unit in the

development to an individual or family because the individual or

family participates in the housing choice voucher program; or

(B)

use a financial or minimum income standard

that requires an individual or family participating in the housing

choice voucher program to have a monthly income of more than 250

percent of the individual's or family's share of the total monthly

rent payable for a unit;

(7)

the housing finance corporation, the housing

finance corporation user, or the development causes to be published

on the Internet website of the development information about the

development's policies regarding tenant participation in the

housing choice voucher program;

(8)

any housing finance corporation or housing finance

corporation user that owns the development:

(A)

affirmatively markets available residential

units directly to individuals and families participating in the

housing choice voucher program; and

(B)

notifies local housing authorities of the

development's acceptance of tenants in the housing choice voucher

program; and

(9)

each lease agreement for a residential unit in the

development provides that:

(A)

the housing finance corporation, the housing

finance corporation user, and the development may not retaliate

against the tenant or the tenant's guests by taking an action

because the tenant established, attempted to establish, or

participated in a tenant organization;

(B)

the housing finance corporation, the housing

finance corporation user, and the development may only choose to

not renew the lease if the tenant:

(i)

committed one or more substantial

violations of the lease;

(ii)

failed to provide required information

on the income, composition, or eligibility of the tenant's

household; or

(iii)

committed repeated minor violations

of the lease that disrupt the livability of the property, adversely

affect the health and safety of any person or the right to quiet

enjoyment of the leased premises and related development

facilities, interfere with the management of the development, or

have an adverse financial effect on the development, including the

failure of the tenant to pay rent in a timely manner; and

(C)

to not renew the lease, the housing finance

corporation, the housing finance corporation user, or the

development must serve a written notice of proposed nonrenewal on

the tenant not later than the 30th day before the effective date of

nonrenewal.

(d)

In calculating the income of an individual or family for

a lower or moderate income housing unit, the housing finance

corporation, the housing finance corporation user, or the

development must use the definition of annual income described in

24 C.F.R. Section 5.609 for the applicable fair market rent area

with an imputed family size of one person per bedroom plus one

person, as defined and implemented by the United States Department

of Housing and Urban Development.

If the income of a tenant exceeds

an applicable limit at the time of the renewal of a lease agreement

for a residential unit, the provisions of Section 42(g)(2)(D),

Internal Revenue Code of 1986, apply in determining whether the

unit may still qualify as a lower or moderate income housing unit.

(e)

A housing finance corporation, housing finance

corporation user, or development may require an individual or

family participating in the housing choice voucher program to pay

the difference between the monthly rent for the applicable unit and

the amount of the monthly voucher if the amount of the voucher is

less than the rent.

(f)

A tenant may not waive the protections provided by

Subsection (c)(9). A housing finance corporation, housing finance

corporation user, or development may adopt tenant protections that

are more protective of tenants than the tenant protections provided

by Subsection (c)(9).

(g)

A multifamily residential development that is acquired

by a housing finance corporation and is occupied on the date of the

acquisition is eligible for an ad valorem exemption under Section

394.905 for the two-year period following the date of the

acquisition, regardless of whether the development complies with

the conditions prescribed by Subsection (c), if the development

comes into compliance with Subsection (c) not later than the second

anniversary of the date of the acquisition.

Sec.

394.9027.

AUDIT REQUIREMENTS FOR CERTAIN MULTIFAMILY

RESIDENTIAL DEVELOPMENTS.

(a)

In this section:

(1)

"Department" means the Texas Department of Housing

and Community Affairs.

(2)

"Housing finance corporation user" has the meaning

assigned by Section 394.9026.

(b)

A housing finance corporation or housing finance

corporation user that claims an ad valorem tax exemption for a

multifamily residential development under Section 394.905 and to

which Section 394.9026 applies must annually submit to the

department an audit report for a compliance audit, prepared at the

expense of the corporation or user and conducted by an independent

auditor or compliance expert with an established history of

providing similar audits on housing compliance matters, that:

(1)

states whether the corporation or user is in

compliance with the requirements imposed for the exemption by

Section 394.9026; and

(2)

identifies 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

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 any housing finance corporation or

housing finance corporation user that owns the development that is

the subject of an audit, the comptroller, and the governing body of

the housing finance corporation's sponsoring local government or

governments; and

(3)

describe in detail the nature of any failure to

comply with the requirements of Section 394.9026.

(d)

If an audit report submitted under Subsection (b)

indicates noncompliance with Section 394.9026, any housing finance

corporation or housing finance corporation user that owns the

development must be given written notice from the department that

is provided not later than the 120th day after the date a report has

been submitted under Subsection (b) and specifies the reasons for

noncompliance.

The notice must:

(1)

for a finding of noncompliance with any provision

of Section 394.9026, contain at least one option for a corrective

action to resolve each instance of noncompliance;

(2)

give a period of 60 days after the date of receipt

of the notice to resolve the matter that is the subject of the

notice; and

(3)

inform the housing finance corporation or housing

finance corporation user that failure to resolve the noncompliance

within the period provided by Subdivision (2) will result in the

loss of the ad valorem tax exemption under Section 394.905.

(e)

If a matter that is the subject of a notice provided

under Subsection (d) is not resolved to the satisfaction of the

department during the period provided by that subsection, the

department must give a housing finance corporation or housing

finance corporation user a second written notice that informs the

chief appraiser of the appraisal district in which the development

is located, the housing finance corporation, and the housing

finance corporation user of the loss of the ad valorem tax exemption

for the development due to noncompliance with Section 394.9026.

(f)

A housing finance corporation or housing finance

corporation user is considered to be in compliance with Section

394.9026 if notice under Subsection (d) is not provided before the

121st day after the date the report was submitted under Subsection

(b).

(g)

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 existing

multifamily residential development that is acquired by a housing

finance corporation; or

(2)

the date a newly constructed multifamily

residential development first becomes occupied by one or more

tenants.

(h)

Subsequent audit reports following the issuance of the

initial audit report under Subsection (g) are due not later than

June 1 of each year.

(i) The department:

(1)

shall adopt forms and reporting standards for the

auditing process;

(2)

may charge a fee for the submission of an audit

report under this section in a reasonable amount necessary to cover

the expenses of administering this section;

(3)

may extend any deadline imposed under this section

for good cause shown, as determined by the department; and

(4)

may adopt rules necessary to implement this

section and Section 394.9026.

(j)

An audit conducted under Subsection (b) is subject to

disclosure under Chapter 552, Government Code, except that

information containing tenant names, unit numbers, or other tenant

identifying information may be redacted.

SECTION 8. Section 394.903, Local Government Code, is

amended to read as follows:

Sec. 394.903. LOCATION OF RESIDENTIAL
DEVELOPMENTS

[
DEVELOPMENT
];
TRANSFER OF
[
RESIDENTIAL DEVELOPMENT
] SITES. (a) A

residential development
subject to
[
covered by
] this chapter must

be located within the
boundaries of the
local government
that

formed the housing finance corporation that owns, finances, or

supports the development
.

(b) The local government may transfer any residential

development site to a housing finance corporation by sale or lease.

The governing body of the local government may authorize the

transfer by resolution without submitting the issue to the voters

and without regard to the requirements, restrictions, limitations,

or other provisions contained in any other general, special, or

local law. The site
location is subject to the requirements of this

chapter
[
may be located wholly or partly inside or outside the local

government
].

SECTION 9. Section 394.905, Local Government Code, is

amended to read as follows:

Sec. 394.905. EXEMPTION FROM
TAXES AND FEES
[
TAXATION
].

(a) Subject to compliance with the requirements of this chapter, a

[
The
] housing finance corporation
and
[
,
] all property owned
,

financed, or supported
by
the corporation
[
it
], the income from

that
[
the
] property, all bonds issued by
the corporation
[
it
], the

income from
those
[
the
] bonds, and the transfer of
those
[
the
] bonds

are exempt, as public property used for public purposes, from

license fees, recording fees, and all other taxes imposed by this

state or any political subdivision of this state.

(b)
The corporation is exempt from the franchise tax imposed

by Chapter 171, Tax Code, only if the corporation is exempted by

that chapter.

(c)

A residential development is exempt from ad valorem

taxes imposed by this state or any political subdivision of this

state only if any applicable requirements of Section 394.9026 are

met and if:

(1)

the residential development is located within the

boundaries of the local government that formed the housing finance

corporation;

(2)

the board of directors of the housing finance

corporation has adopted a resolution approving the multifamily

residential development;

(3)

before approval of the board of directors under

Subdivision (2), the housing finance corporation or a sponsoring

local government of the corporation:

(A)

conducts, or obtains from a professional

entity that has experience underwriting affordable residential

developments and does not have a financial interest in the

applicable development or any applicable housing finance

corporation user, an underwriting assessment of the proposed

development that is dated not earlier than the 180th day before the

date of the board resolution;

(B)

based on the underwriting assessment, makes a

good faith determination that:

(i)

for a development that is acquired by a

housing finance corporation and that is occupied at acquisition or

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

date of the acquisition, the annual public benefit at the

development will be not less than 60 percent of the amount of

estimated ad valorem taxes that would be imposed on the property in

the same tax year if the applicable property did not receive an

exemption from those taxes under Subsection (a) for each of the

third, fourth, and fifth tax years after the tax year that the

corporation acquires the development; and

(ii)

for a newly constructed development

not described by Subparagraph (i), the development would not be

feasible if the property did not receive an exemption from ad

valorem taxes under Subsection (a); and

(C)

publishes on its Internet website a copy of

the underwriting assessment required by this subsection; and

(4)

the housing finance corporation 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 project information form on a form promulgated by

the comptroller.

(d)

For purposes of Subsection (c)(3)(B)(i), not less than

50 percent of the annual public benefit required under that

subparagraph must be attributable to rent reduction.

(e)

Notwithstanding Subsections (a)-(c), and subject to

Section 394.9027, a multifamily residential development owned by a

housing finance corporation or housing finance corporation user is

not entitled to an ad valorem tax exemption in any given tax year in

which:

(1)

the corporation or user is not in compliance with

Section 394.9026 and:

(A)

the notice requirements in Section

394.9027(d) have been fulfilled; and

(B)

the noncompliance is not resolved to the

satisfaction of the Texas Department of Housing and Community

Affairs within the period provided by Section 394.9027(d)(2); or

(2)

the corporation or user has not timely submitted

the audit report required by Section 394.9027.

(f)

Subsection (a) does not apply to ad valorem taxes

imposed on a multifamily residential development by:

(1)

a conservation or reclamation district created

under Section 52, Article III, or Section 59, Article XVI, Texas

Constitution, that provides water, sewer, or drainage service to

the development, unless the applicable corporation has entered into

a written agreement with the district to make a payment to the

district in lieu of taxation, in the amount specified in the

agreement; or

(2)

an emergency services district created under

Chapter 775, Health and Safety Code, unless the applicable

corporation has entered into a written agreement with the district

to make a payment to the district in lieu of taxation, in the amount

specified in the agreement.

(g)

Subsections (c)(3), (c)(4), (d), and (e) do not apply to

a multifamily residential development that receives financial

assistance administered under Subchapter DD, Chapter 2306,

Government Code.

(h) In this section:

(1)

"Housing finance corporation user"

has the meaning

assigned by Section 394.9026.

(2)

"Public benefit" means the overall measurable

economic benefit delivered by a multifamily residential

development, including rent reduction, any monetary payments made

in lieu of taxes by the housing finance corporation or housing

finance corporation user, and any monetary payments received by the

corporation.

(3)

"Rent reduction"

means the projected difference

between the rent charged for an income-restricted unit and the

maximum market rate rent that could be charged for that same unit

without the income restrictions.

SECTION 10. Section 394.005, Local Government Code, is

repealed.

SECTION 11. (a) Section 394.037(a-1), Local Government

Code, as added by this Act, applies only to bonds issued on or after

the effective date of this Act. Bonds issued before the effective

date of this Act are governed by the law in effect on the date the

bonds were issued, and the former law is continued in effect for

that purpose.

(b) Section 394.9026, Local Government Code, as added by

this Act, and Section 394.905, Local Government Code, as amended by

this Act, apply only to a tax for a tax year that begins on or after

the effective date of this Act.

(c) Subject to Subsections (d) and (e) of this section,

Sections 394.9026 and 394.9027, Local Government Code, as added by

this Act, apply to all multifamily residential developments that do

not receive financial assistance administered under Subchapter DD,

Chapter 2306, Government Code, and are claiming an ad valorem tax

exemption under Section 394.905, Local Government Code, as amended

by this Act, regardless of when the developments were approved or

acquired.

(d) Section 394.9026(g), Local Government Code, as added by

this Act, applies only to an occupied multifamily residential

development that is acquired by a housing finance corporation on or

after the effective date of this Act.

(e) Notwithstanding Section 394.9027(b) or (g), Local

Government Code, as added by this Act, the initial audit report

required to be submitted under Section 394.9027(b), Local

Government Code, as added by this Act, for a multifamily

residential development that was acquired by a housing finance

corporation before the effective date of this Act must be submitted

by the later of:

(1) the date established by Section 394.9027(g), Local

Government Code, as added by this Act; or

(2) June 1, 2026.

(f) Subject to Subsections (g) and (h) of this section,

Section 394.905, Local Government Code, as amended by this Act,

applies to all multifamily residential developments owned,

financed, or supported by a housing finance corporation, regardless

of when the developments were approved or acquired.

(g) Section 394.905(c), Local Government Code, as added by

this Act, applies only to a multifamily residential development

that does not receive financial assistance administered under

Subchapter DD, Chapter 2306, Government Code, and that is acquired

by a housing finance corporation on or after the effective date of

this Act.

(h) A multifamily residential development that is owned,

financed, or supported by a housing finance corporation on

September 1, 2025, does not receive financial assistance

administered under Subchapter DD, Chapter 2306, Government Code,

and is located outside an area in which the corporation is

authorized to engage in residential development under Section

394.903, Local Government Code, as amended by this Act, is not

eligible for an ad valorem tax exemption under Section 394.905,

Local Government Code, as amended by this Act, after January 1,

2027.

(i) Not later than January 1, 2026, the Texas Department of

Housing and Community Affairs shall adopt rules necessary to

implement Section 394.9027(i), Local Government Code, as added by

this Act.

SECTION 12. 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.

* * * * *