Latest Senate Tax Plan Would Tweak Low-Income Housing Credit Program

WASHINGTON — Under revised Senate tax legislation Republican lawmakers offered Tuesday a major federal tax credit program that supports the development of affordable rental housing would see changes, but would not be cut or drastically overhauled.

The latest version of the Senate tax plan, known as a “chairman’s mark,” incorporates revisions to the Low-Income Housing Tax Credit program that were pulled from a bipartisan Senate bill introduced earlier this year—the Affordable Housing Credit Improvement Act.

Sen. Maria Cantwell, a Washington state Democrat, is the lead sponsor of the Affordable Housing Credit Improvement Act, which calls for changes to the Low-Income Housing Tax Credit program that the credit's proponents are eager to see. 

Notably, it would boost credit allotments for states and broaden income eligibility levels for housing tenants.

Those marquee provisions in the standalone bill are not included in the Senate tax measure.

But multiple people who work on affordable housing issues said Wednesday that the less drastic changes that were added to the latest version of the chairman’s mark are generally positive.

They also indicated that a continued priority for them is to stop a proposal in the House tax bill that would eliminate an income tax exemption for interest earned from private activity bonds. The bonds are currently an important source of financing for many low-income housing real estate projects. The Senate legislation would leave the exemption for private activity bonds in place.

On Wednesday, the Senate Finance Committee, led by Utah Republican Orrin Hatch, continued its markup of the tax legislation. Democrats bristled as Republicans attempted to insert language into the bill that would roll back individual health insurance requirements under the Affordable Care Act, often called Obamacare.

The full House was expected to vote on GOP tax legislation in that chamber before the end of the week.

Rick Goldstein, is a partner at the law firm Nixon Peabody, LLP and counsel to The Affordable Housing Tax Credit Coalition, a group with members that include investors, developers and state agencies. He characterized the language grafted into the Senate tax measure from the Affordable Housing Credit Improvement Act as mostly technical.

He said the coalition appreciates the updates, but added: “These are not the all star provisions that we were hoping might get into the bill.”

One of the provisions that did get included, which Goldstein highlighted, could have implications for local governments.

It would bar state agencies from factoring in support from local or elected leaders into decision making processes when competitively awarding tax credits to housing developers

The provision would also restrict how the agencies could take local government funding contributions into consideration when determining how to allocate credits.

This part of the legislation is tied to concerns fair housing groups and others have raised about "NIMBY," or not in my back yard, sentiments blocking low-income housing projects. 

Jennifer Schwartz, assistant director for tax policy for the National Council of State Housing Agencies, explained by phone Wednesday that over the years some states have shifted toward requiring consent from local officials for projects to proceed, or favoring proposed projects that have support at the local level.

"They might say 'oh, this will move through the process faster at the local permitting level,' so they're going to get points for it," Schwartz said. That can translate, she added, into "basically a local veto power."

Garth Rieman, director of housing advocacy with the council, emphasized that whether the Low-Income Housing Tax Credit language getting tacked into the Senate legislation is seen as major or minor is to some degree a matter of perspective.

For instance, he highlighted provisions that would give nonprofits a "right of first refusal" purchase option. There's also direction to include Native American tribes in qualified plans to allocate credits.

"They're items that help improve the program," Rieman said.

Created during the 1986 tax overhaul, the Low-Income Housing Tax Credit reduces dollar-for-dollar the taxes a taxpayer owes. The federal government allocates credits to state agencies, which then award them to developers of qualified rental housing. Developers can use the credits, or sell them to investors to raise money for project costs.

The program is designed so that developers have to borrow less money for projects, and can pass on savings in the form of lower rents.

A database maintained by the U.S. Department of Housing and Urban Development has information on 45,905 projects and nearly 3 million housing units that have been developed using the program and placed in service between 1987 and 2015. 

Goldstein emphasized that private activity bonds are a crucial component to many low-income housing deals and estimated that the House proposal to nix the tax exemption for them could reduce the number of affordable rental units coming online by about 50,000 in a year's time, and by up to 900,000 in the coming decade.

"It's a devastating reduction if the House bill were to be enacted," Goldstein said.

He went on to note that it's possible House lawmakers included the proposal to end the private activity bond exemption as a bargaining chip for any eventual negotiations with the Senate, knowing Hatch, the Finance Committee chair, is supportive of affordable housing.

One housing policy expert tracking the bill closely, who spoke to Route Fifty on background Wednesday, expressed relief that Republicans aren't pushing to eliminate the Low-Income Housing Tax Credit, and trepidation about the House legislation.

"The House bill could really set people back a lot," they said.