White House Budget Mix Both Funding Increases and Cuts for Housing

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Tax Credit Advisor, March 2010: On February 1, the White House unveiled a proposed federal budget for the fiscal year that begins October 1 calling for a mix of spending increases and cuts to federal housing and community development programs.

The FY 2011 budget request also proposes tax law changes to:

  • Extend the Section 1602 low-income housing tax credit exchange program by one year. State housing credit agencies could exchange up to 100% of their unused 2009 per capital credits and up to 40% of their 2010 per capita and national pool credits for cash grants. They would have to use these new funds by December 31, 2012.
  • Extend the new markets tax credit program by two years, through 2011, with $5 billion in annual allocation authority in 2010 and 2011, and to allow the NMTC to offset tax liability under the federal alternative minimum tax.
  • Codify the economic substance doctrine, which bars transactions in which the principal motivation is the avoidance of federal tax.
  • Make the Build America Bond program permanent, at a reduced interest subsidy rate of 28% but with broader eligible uses.
  • Tax carried interests at ordinary income rates.

HUD Budget

The budget proposes $41.6 billion in net new budget authority in FY 2011 for the U.S. Department of Housing and Urban Development (HUD), 4.6% less than the enacted appropriation for FY 2010. This fits with the Administration’s focus on deficit reduction.

HUD Secretary Shaun Donovan called it a “bold budget – one that will achieve more with less.” He said the budget’s “carefully targeted investments” will enable HUD programs to house over 2.4 million families in public and assisted housing, provide tenant-based vouchers to more than 2.1 million households, more than double the annual production rate for permanent supportive housing for the homeless, and create and retain over 112,000 jobs.

The budget proposes significant percentage funding increases for HUD’s tenant-based rental assistance program (+7.5%), project-based rental assistance program (+9.6%), and homeless assistance grants (+10.1%). Significant percentage cuts are proposed for public housing capital grants (-18.2%), Native American Housing Block Grants (-17.1%), and the HOME Investment Partnerships program (19.6%). No new funding is provided for capital advances for the Section 202 (elderly) and Section 811 (disabled) supportive housing programs. Roughly the same funding level is proposed for Community Development Block Grants. Some $1 billion is provided to capitalize the new Affordable Housing Trust Fund.

The budget proposes no new funding for the HOPE VI public housing redevelopment program, but rather another $250 million for the Administration’s proposed new Choice Neighborhood Initiatives program, which hasn’t been enacted.

The new HUD budget proposes a major new Transforming Rental Assistance (TRA) initiative, to eventually create a uniform funding stream for public housing and HUD-assisted multifamily rental properties that now receive deep rental assistance under 13 separate current HUD programs. The initiative’s focus in FY 2011 would be on preserving public housing and assisted multifamily properties through voluntary conversions of many such properties to a simpler form of rental assistance. Public housing authorities and assisted housing owners could opt to convert their properties to long-term, property-based rental assistance contracts that include a resident mobility feature. The budget requests $350 million to preserve about 300,000 public and assisted housing units and to increase the efficiency of the tenant-based assistance program.

The budget also proposes a new Catalytic Investment Competition Grants program, to provide $150 million in competitive CDBG grants to stimulate jobs and create “game changing” economic development opportunities.

Rural Housing Programs

The Administration’s budget request calls for the same or greater funding levels for most federal rural multifamily programs administered by USDA’s Rural Housing Service, including direct and guaranteed rental housing loans, rental assistance, and farm labor housing loans and grants.