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.     * * * * *