Returning Congress Faces New LIHTC Proposals, Pending Housing Legislation

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Tax Credit Advisor, September 2009: When Congress reconvenes after Labor Day, advocates will be pressing lawmakers to enact pending and new legislative proposals to bolster affordable housing, historic preservation, and community development.

This wish list includes fixes for the ailing low-income housing tax credit equity market, extension of the new markets tax credit, appropriations for federal housing programs, and other measures.

LIHTC Legislative Proposals

The low-income housing tax credit (LIHTC) industry will be lobbying hard for enactment of a consensus package of proposed legislative amendments developed and endorsed by a large and diverse group of organizations, designed to broaden the LIHTC investor base, substantially boost equity investment, and help stalled projects.

The proposals are outlined in a joint letter to lawmakers signed by more than 40 trade associations, nonprofit organizations, and other groups comprising a coalition called The Affordable Housing Rental A.C.T.I.O.N. (A Call To Invest In Our Neighborhoods). Among the signers are the National Housing & Rehabilitation Association, Affordable Housing Tax Credit Coalition, Housing Advisory Group, Affordable Housing Investors Council, Enterprise Community Partners, National Association of Home Builders, and National Association of State and Local Equity Funds.

The proposals would amend current federal tax law to:

  • Liberalize the so-called carryback rules to aid current LIHTC investors and attract new investors. Current LIHTC investors could carry back to use in the past five federal tax years, instead of just the past year, unused existing housing credits from tax returns they file in 2008-2010, provided they make new LIHTC investments at least equal to their tax savings from the carried back credits. Carried back credits also could offset tax liability under the alternative minimum tax (AMT). The proposal would also benefit new investors, by extending the carryback period to five years for new LIHTC investments, for credits first claimed after 2008.
  • Further broaden the LIHTC investor base, by allowing certain S corporations, limited liability companies, and closely-held C corporations to offset, with housing credit tax benefits, revenues that would otherwise be taxable when passed through to the owners of these businesses. This treatment would be limited to entities that meet three tests: (1) at least $10 million in annual gross receipts; (2) the principal purpose of forming the entity wasn’t the avoidance or evasion of federal income tax; and (3) there is an expectation of reasonable asset management.
  • Extend the current LIHTC credit exchange program by one year, and broaden it to permit exchanges of 4% credits from proposed tax-exempt bond-financed projects. Currently, state housing credit agencies have until 12/31/09 to exchange unused housing credits, and 2009 credits are the most recent they can trade for cash grants.

In their letter, the groups urge Congress to enact the package of LIHTC proposals in upcoming tax legislation. “These proposals will stimulate affordable rental housing production while creating and saving tens of thousands of jobs,” the letter says.

It notes that the LIHTC, “the nation’s largest and most successful affordable rental housing production program,” has financed more than two million apartments since 1987 and about 120,000 units annually in recent years; has supported about 180,000 jobs annually until recently; and generated an extra $1.5 billion in taxes and other revenues for localities.

But the letter says the recession and financial crisis have “drastically reduced” LIHTC equity investment in the past 18 months, from an annual peak of about $9 billion in 2006-2007, to about $5.5 billion in 2008, to probably even less in 2009.

The consensus-building effort was driven by the Center for American Progress Action Fund and Living Cities. Boston attorney David Abromowitz, a partner in Goulston & Storrs, and a fellow with the Center for American Progress, convened the meetings and conference calls of participating organizations. In an interview, he explained why the coalition feels its legislative proposals need to be passed. “People estimate we’ve lost more than 50% of the normal tax credit equity investment…at a time when there’s still an increase in need for quality rental housing,” he said.

Abromowitz added, “The need to bring more investors into the market is clear to people when long-term major investors are not likely to be back in the market buying credits anytime soon.” He cited the withdrawal of major buyers Fannie Mae and Freddie Mac and certain other major financial institutions.

The coalition and its member organizations will press their case in Congress in coming weeks, particularly with the chairs, members, and staff of the tax-writing committees. One potential legislative vehicle to carry the LIHTC proposals to passage is an “extenders” bill, which must be enacted to continue various current federal tax incentives set to expire on 12/31/09.

Some industry participants note that the prospects and timing of consideration of the LIHTC proposals could well be influenced by what Congress does in the next few months regarding pending priority legislation, such as health care reform. Current health care proposals, for example, look heavily to new federal tax revenues to help pay for their cost, and might occupy Congress for weeks and weeks.

NMTC, Historic Tax Credits

Supporters of the federal new markets tax credit (NMTC) hope Congress will approve an extension of the program beyond its scheduled sunset of 12/31/09.

Sen. Jay Rockefeller (D-W.V.) has introduced a bill (S. 1583) to renew the NMTC program for five years and provide $5 billion in annual NMTC allocation authority. The bill would also enable new markets credits to offset taxes under the federal AMT. A similar bill (H.R. 2628) is pending in the U.S. House of Representatives.

Meanwhile, lawmakers in the House and U.S. Senate are soon expected to introduce bills containing proposed tax law changes to enhance the federal rehabilitation tax credit that have been crafted by an industry coalition. These changes would boost the credit amount for small projects, permit credits for moderate rehabilitation, and provide incentives to “green” historic buildings. (For details, see Tax Credit Advisor, July 2009, p. 23.)

Appropriations Bills

House and Senate conferees will be trying to forge a compromise appropriations bill for the U.S. Department of Housing and Urban Development (HUD) for Fiscal Year 2010, which begins October 1st.

House- and Senate-passed versions of the bill (H.R. 3288) would significantly boost funding for HUD in FY 2010 from the $41.5 billion enacted for FY 2009. Increases would be provided for the HOME Investment Partnerships program, Community Development Block Grants, project- and tenant-based rental assistance, homeless assistance grants, and certain other programs.

The pending legislation includes funds for new HUD programs proposed by the Admini-stration: Sustainable Communities Initiative, Rural Innovation Fund, Energy Innovation Fund, and University Community Fund.

The Senate but not the House bill provides $250 million for Choice Neighborhoods Initiative (CNI), a new program proposed by the Administration to replace the HOPE VI public housing revitalization program. The House bill instead provides $250 million for HOPE VI.

Separately, the House and Senate have approved different versions of an FY 2010 appropriations bill (H.R. 2997) to fund federal rural housing programs administered by USDA’s Rural Development. (See chart on p. 7 on HUD, rural housing program funding levels.)

Housing Bills

Other housing-related bills that have advanced in the House and await further action are:

  • Section 8 Voucher Reform. The House Financial Services Committee on 7/23/09 approved a bill (H.R. 3045) that would enhance and modify HUD’s Section 8 Housing Choice Voucher Program. It would authorize 150,000 new vouchers, streamline the process of providing Section 8 assistance, streamline the inspection process for units, and give public housing agencies greater flexibility to project-base vouchers.
  • Supportive Housing Modernization. The House on 7/22/09 approved a bill (H.R. 1675) to modernize HUD’s Section 811 program, which helps finance supportive rental housing for persons with disabilities. The bill would create a competitive project rental assistance contract (PRAC) demonstration program, and permit state housing finance agencies and local governments to apply for these demo dollars.
  • National Flood Insurance Renewal. The House on 7/29/09 approved a bill (H.R. 3139) to extend the National Flood Insurance Program through 3/31/10.

In addition, the House Financial Services Committee is expected at some point to write a sweeping housing bill that strengthens incentives for preservation of affordable housing. Two recent House hearings focused on housing preservation and on a draft preservation bill released by Committee Chairman Barney Frank (D-Mass.).

Other possible forthcoming measures that could affect housing if enacted include proposals to capitalize the National Housing Trust Fund, financial reform legislation, and climate change legislation. (See p. 18 for article on climate change legislation and housing-related provisions.)