LOS ANGELES — The House GOP tax bill would undermine California's efforts to fight its housing shortage, say affordable housing advocates.

The impact would be national, but would be keenly felt in California, where the legislature just passed 15 bills aimed at tackling the state’s housing crisis.

The legislation would eradicate private activity bonds and undermine the low-income housing tax credit by eliminating the availability of credits for projects where at least 50% is financed by tax-exempt private activity bonds.

California State Treasurer John Chiang
"Nearly two-thirds of affordable housing in the state is produced because of private activity bonds,” said California's treasurer, John Chiang. Bloomberg News

"Nearly two-thirds of affordable housing in the state is produced because of private activity bonds,” State Treasurer John Chiang said at the California Economic Summit earlier this month in San Diego.

Under a bill advanced Thursday by the House Ways and Means Committee, the tax exemption for private activity bonds would be terminated after Dec. 31. Terminating the tax exemption for all PABs after Dec. 31 would raise $38.9 billion over 10 years to fund Republican plans to lower other taxes, according to the Joint Committee on Taxation.

The repeal of the PAB exemption would eliminate credit availability for housing projects where at least half is financed by PABs, according to a publication posted Nov. 3 by Ballard Spahr.

“About half of the program would be effectively eliminated by repealing private activity bonds," said Alicia Glen, New York's deputy mayor for housing and economic development.

Chiang sent a letter Friday to House Majority Leader Congressman Kevin McCarthy, R-Calif., a leader in the House’s tax efforts, urging him “to preserve funding for the Low Income Housing Tax Credit and private activity bond program.”

California is the largest beneficiary of the 4% Housing Credit and tax-exempt private activity bonds in the country, according to Chiang’s letter.

The tax credit and PAB programs alone are responsible for 101 projects since 2013 that produced 9,418 affordable housing units in California's 14 GOP-held congressional districts alone, Chiang said Friday. In all, California has 53 congressional districts.

In 2016, affordable housing projects in California received $2.2 billion of 4% housing credits and the state deployed more than $6 billion of private activity tax-exempt bond authority for multifamily and single family homes, according to Chiang's letter. These two funding sources created or preserved more than 20,600 affordable homes in 2016, of which 19,275 homes were for households earning 60% or less of area median income.

More than 6,699 housing units involve new construction and 5,037 of the 20,600 homes have been set aside to house seniors and households with special needs individuals.

“We cannot overstate the vital role these programs play in building and preserving affordable housing throughout the nation, but especially in California as we struggle with a housing crisis that is quickly metastasizing into a humanitarian and public health catastrophe,” Chiang wrote. “Not only does California account for one-fifth of the nation’s homeless, but one-in-three renters commit more than half of their wages to rent.”

The elimination of the housing credit and bond program “would throw gasoline on a housing shortage that already stands at one and a half million units and is growing by an alarming 60,000 units each year,” Chiang said.

Affordable housing initiatives in New York would be devastated, according to that state's top housing official.

"The proposed elimination of private activity bonds jeopardizes the unprecedented commitment of Governor [Andrew] Cuomo to provide safe affordable housing and combat homelessness across New York State,” said RuthAnne Visnauskas, commissioner for New York State Homes and Community Renewal.

Her agency has issued more than $10.9 billion of tax-exempt bonds along with $13 billion in private capital since 2011, according to Visnauskas, who was appointed to the housing post in March.

The tax reform plan “is wiping out the assembly of all private activity bonds, which is the crux of most post-redevelopment agency deals,” said Larry Kosmont, president and chief executive officer of Kosmont Companies, a government and real estate consulting firm in Southern California.

A California law passed in 2011 dissolved its more than 400 redevelopment agencies. In addition to encouraging private development in blighted areas, the state’s former RDAs were also required to set aside 20% for affordable housing.

The redevelopment agencies contributed $1 billion a year to affordable housing through the 20% set-aside, a contribution that ended when the redevelopment agencies were abolished, Kosmont said.

Chiang and former Los Angeles Mayor Antonio Villaraigosa, who are both running for governor in 2018, said they would bring back redevelopment agencies to aid in tackling the state's housing crisis.

The state needs to build 180,000 new homes over the next decade to deal with population growth and house current residents, according to a state Department of Finance report. The state's housing bills passed recently would get at 10% of that figure, according to Kosmont.

If PABs are eliminated, the picture will get much bleaker.

The low-income tax credit for affordable housing will be ineffective without the ability to use it in conjunction with tax-exempt private activity bonds, Kosmont said.

“The only way we can do them is through PABs,” Kosmont said. “The other option is lease-leasebacks, but in California you are then faced with prevailing wage and other high-cost items that make that option complicated.”

States and local governments would have to find some other way to provide affordable housing, said Richard Jost, director of Las Vegas law firm Fennemore Craig.

“There would still be low income housing tax credits to generate production of rental housing for low and moderate housing, but there is tight competition to get the 9% credits,” Jost said.

States auction off 9% tax credits once or twice a year to affordable housing developers, who put in bids. Any affordable housing of which more than 50% of the cost was financed through tax exempt bonds got the 4% tax credits, Jost said.

In order to qualify for the 4% tax credit program, affordable housing developers need to be able to partner with the government on the issuance of private activity bonds to support the project.

“That has been helpful for states like Nevada where the 9% tax credits did not go far enough,” Jost said.

“If all the states are left with are 9% tax credits, the competition for those credits would be horrible,” Jost said.

“In states like California, there are much bigger needs, because of the fires and other problems they have experienced,” Jost said. “I think it would be devastating for them.”

This year's California housing legislation would be undermined by the House tax bill, Kosmont said. The state's voters will be asked in November 2018 through a bond measure to authorize $4 billion of bonds with the hope of leveraging nearly $11 billion more in federal tax credits.

"The state just approved 15 housing bills in California, several of which are dependent on leveraging and providing federal support through tax credits – those would be destroyed by the proposed federal legislation,” Kosmont said.

Chiang said the elimination of PABs, would be a huge blow to those efforts and other states' efforts to support new housing for middle class and poor people.

Andrew Coen and Paul Burton contributed to this article.