The possibility of tax reform in the near future has increased significantly with Donald Trump headed to the White House.
A week after the Nov. 8 election, affordable housing leaders were assessing what a Trump administration will mean for their industry.
While much remains unknown about the president-elect’s plans, tax reform is expected to be among the major initiatives taken up by the administration and a Republican-controlled Congress, according to housing advocates at AHF Live: The 2016 Affordable Housing Developers Summit in Chicago.
Acknowledging that developers and others have been filled with anxiety following the election, officials tried to ease concerns.
“We have really strong relationships, and those remain in the House and Senate,” said David Gasson, executive director of the Housing Advisory Group and vice president of Boston Capital.
Key supporters of the low-income housing tax credit (LIHTC) remain in key positions, including Sen. Orrin Hatch (R-Utah), who is set to continue as chairman of the influential Senate Finance Committee, and Sen. Ron Wyden (D-Ore.), the committee’s ranking member.
Gasson and others said the odds for tax reform have shot up with Republicans in control of the White House, the House, and the Senate.
This could have significant consequences if the LIHTC, the nation’s most important source for financing affordable housing, gets caught up in the efforts. Developers and others are worried that the housing credit could be eliminated or reduced under a sweeping tax reform plan.
The industry has done a good job of building bipartisan support for the LIHTC, but concerns remain.
“If there’s a risk, it’s not because people don’t like the tax credit,” said Rick Lazio, head of the affordable housing and housing finance practice at the Jones Walker law firm. “It’s because it’s not a priority. It could be traded off or used to fund other priorities. That’s where the risk is.”
Trump has called for corporate tax rates to be reduced to 15% from 35%. The House Republicans have talked about a 20% rate. “The lower the rate means two things,” said Lazio, who served four terms in Congress. “It means we’re more at risk. No. 2, the tax credit itself is less valuable and generates less equity. Prices are going to come down.”
Bob Moss, principal and national director of governmental affairs at CohnReznick, stressed that advocacy efforts have successfully built strong support for the housing credit in Congress.
He pointed out that Hatch is a co-sponsor, along with Sen. Maria Cantwell (D-Wash.), of the Affordable Housing Credit Improvement Act of 2016, which seeks to expand the LIHTC program. “That bodes so well for the future,” Moss said.
The bill (S. 3237) also seeks to help address affordable housing needs in rural areas, and the needs of rural communities was one of the themes heard in the recent election, noted Peter Lawrence, director of public policy and government relations at Novogradac and Co.
“There is still a huge affordable rental housing crisis out there,” he said. “That didn’t change on Nov. 9.”
Tax reform efforts could also mean changes to the mortgage interest deduction (MID), added Diane Yentel, president and CEO of the National Low Income Housing Coalition. “For many years, people have talked about that as an impossibility or the third rail that’s never going to be touched,” she said. “It’s actually on the table as part of the discussion.”
The industry needs to work to make sure that any savings that result from changes to the MID is reinvested into affordable housing programs like the housing credit and the National Housing Trust Fund, she said.
The federal budget is also another big concern. In September, federal leaders avoided a government shutdown by passing a short-term continuing resolution through Dec. 9, leaving open what to do next.
One option is to do another short-term continuing resolution early next year. “A lot of the more conservative Republicans are pushing for that so that they can renegotiate the budget with the Republican Congress and the Trump administration,” Yentel said.
Another possibility is a full-year continuing resolution, which would keep the government going and allow lawmakers to focus on next year’s budget. There may also be some work on trying to pass an omnibus spending package that bundles all the remaining spending proposals into one large bill. And, another option would be to move something called a “cromnibus,” a combination of a short-term continuing resolution and an omnibus spending bill, Yentel said.
Perhaps, more significantly, next year’s appropriations process will get even tougher. That was going to be the case regardless of the election results because of the caps coming from the Budget Control Act of 2011, Yentel said.
During AHF Live, a number people expressed concern that funding for appropriated housing programs, including HOME and the Community Development Block Grant, could be reduced.
Need for advocacy
Despite the strong support for the LIHTC in Congress, it’s still important for the industry to meet with their elected representatives to advocate for the housing credit and other programs, stressed speakers on the Capitol Hill Update panel.
“I don’t care what party your member is,” Moss said. “We’re the housing party. We need to deliver our message.”
Lazio called for developers to “appeal to the head and the heart.” That means having elected officials meet with residents.
“Through Republican and Democratic administrations, through expansions and recessions, the constant has been that fewer Americans are able to afford a place to rent,” he said. “There are now over 11 million renters that pay more than 50% of their income on rent.”
Without a safe, stable place to live, families cannot get ahead.
“What child is going to be ready for their math homework if the night before their bed was on a park bench?” Lazio said. “What single mom is going to be ready for her first day of work to get showered and ready and rested if the night before her bed was in an abandoned van? That’s not what we believe in.”