Price Boost for Missouri Housing Credit Is Aim of New Initiative

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Tax Credit Advisor, October 2009: The Missouri Housing Development Commission (MHDC) has retained a team of private practitioners to develop a proposal for changes to the state’s low-income housing tax credit. The goal is to substantially boost the typical pricing received for it by developers. MHDC awards both the federal and state low-income housing tax credits.

The plan will be developed by Washington, D.C. attorney Jerry Reed, a partner in the law firm of Bryan Cave LLP, and Jeanne Peterson, a Sacramento, Calif.-based principal of Reznick Group. The pair was selected from those responding to a request for qualifications issued by MHDC. In its request, MHDC said it was seeking “nationally-recognized experts in the affordable housing industry to provide the legal and accounting services necessary to design a new model for the issuance and redemption of the MO LIHTC in order to generate the amount of equity currently raised through the MO LIHTC while at the same time reducing the cost to the treasury of the state of Missouri.”

The plan is to be submitted to MHDC in time for introduction and consideration of legislation in the next session of the Missouri state legislature. Breed expected that this process will extend into the spring of 2010.

Breed said Missouri’s state housing credit currently generates cash proceeds for a project of about 40 cents per dollar of tax credit. “They [MHDC] want to try to raise that to 65 cents and create a more efficient state credit that way,” he noted. Accomplishing this is likely to require structural changes to the state housing credit, which mirrors and is awarded with the federal housing credit.

Missouri’s state tax credits have come under scrutiny by state officials as a result of the economic downturn and a tight state budget. Moreover, a 2008 audit report by Missouri’s state auditor criticized the state’s housing credit as costly and inefficient.

(http://www.auditor.mo.gov/news/20080417lihtc.htm)

Breed said state tax credits generally raise less cash proceeds for a project in terms of the percentage price per credit dollar, because, for most investors, they reduce their deductions for state tax payments on their federal income tax return and thus increase their federal income tax liability. State tax payments are reduced because state tax credits reduce a taxpayer’s state income tax liability.