New Developments: Victory comes with a price
By Thom Amdur
3 min read
This has been a remarkable few months in Washington. Our broken legislative process once again leaned us over the edge of the budget precipice. We endured yet another (short and, in my opinion, unnecessary) federal government shutdown before Congress enacted a, historically large, $1.3 trillion Omnibus spending measure. According to the Congressional Budget Office (CBO), this measure, combined with the massive tax bill enacted at the end of last December, will result in a ballooning budget deficit for FY-2018 of $804 billion, up from $665 billion in FY-2017. Revised estimates from CBO project that the national debt will exceed GDP by 2028. Presumably sometime soon, something will have to give.
We had some significant victories in the Omnibus legislation, including notable increases in HUD funding and a significant expansion of the LIHTC. (See Climb on Board the Omnibus) This is good news in the short-term, but in the medium to long-term I’m worried that our nation is being set up for a budget showdown similar to the ones we endured in the latter years of the Obama administration when Congress played chicken/Russian roulette with the debt ceiling limit and ultimately enacted austere budgetary caps.
Expect President Trump and budget hawks in Congress to use the ballooning deficit as a foil to once again propose massive cuts in domestic spending in the coming year, with the HUD and USDA RD affordable housing programs clearly in the crosshairs. Just days after President Trump signed the budget deal he was already floating the idea of introducing rescission legislation to claw back funding from the recently enacted bill. Furthermore, the administration is currently being sued for not spending funds appropriated in the last budget cycle (a case they will likely lose given Supreme Court precedence dating back to the Nixon administration). The $64,000 question, at this stage, is will this Congress have more success in enacting steep cuts than they have the past two budget cycles?
The political situation was made even more uncertain when speaker of the House of Representatives Paul Ryan announced he would not seek reelection this fall, making him a lame duck for the remainder of his term and perhaps setting up a disruptive leadership shuffle in the leadup to the mid-term elections. With their majority in the House and perhaps the Senate at risk in the mid-term elections, I expect that the president and Republican Congress will “go for broke” in an attempt to force major cuts in the upcoming budget cycle as the last major act of this Congress.
Taken together, this is likely to create a great deal of uncertainty for our industry in the coming year. Prudent affordable housing professionals would do well to stress test their portfolios and pipelines, as well as plan for a potentially bumpy ride during which federal funding could be disrupted or cut. Developers should consider how their pipelines align with new capital sources, like the Qualified Opportunity Zones or new dedicated sources of affordable housing at the state level, such as recently enacted programs in California and Oregon. Public Housing Authorities should accelerate RAD conversion plans to take advantage of increased public housing capital and operating fund appropriations to lock in higher RAD rents. And of course, we will need to be forceful advocates on Capitol Hill as we face these challenging headwinds.
