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.