Affordable housing supporters are carefully watching legislation that seeks to set a minimum rate for the low-income housing tax credit (LIHTC).
Now that bills have been introduced in both the Senate and House, supporters are hoping to see the legislation move forward this year.
“It needs a big tax vehicle that this gets towed along with,” said Richard Goldstein, a partner at the Nixon Peabody law firm, noting that an opportunity may come when Congress addresses the Highway Trust Fund this spring.
He spoke Thursday on a legislative issues panel at the Novogradac Affordable Housing Conference in San Francisco.
The most recent action came when Sens. Maria Cantwell (D-Wash.) and Pat Roberts (R-Kan.) introduced S. 1193, which seeks to permanently set fixed 9% (for new rental construction property) and 4% (for acquisition) rates for the program. It was introduced May 5, with 22 co-sponsors—18 Democrats, two Republicans, and two Independents.
The bill is identical to H.R. 1142, which was introduced by Reps. Pat Tiberi (R-Ohio) and Richard Neal (D-Mass.) in February. It has 56 co-sponsors—30 Republicans and 26 Democrats.
“You don’t see that kind of bipartisanship on the Hill,” Goldstein said. “This is almost a perfect balance.”
In 2008, the Housing and Economic Recovery Act created a temporary 9% floor for projects, allowing developers to receive additional credits during the economic downturn. However, the fixed rate has since expired, so the LIHTC industry has had to go back to using a floating rate that’s been about 7.5%. At the lower rate, a project may receive as much as 20% less equity.
The proposed 4% fixed rate for acquisitions would be new.
LIHTC supporters would like to see the rates fixed permanently, but there’s a chance that they could be set on a temporary basis like before.
Congress may decide to go ahead and address the issue with a two-year extension to take it through the 2016 election year, said Michael Novogradac, managing partner at Novogradac & Co., an accounting and consulting firm.
Some people have wondered why not just let the credit reach 9% naturally as interest rates rise. Novogradac said that would be a tough scenario because applicable federal rates would have to rise more than 600 basis points to realize a LIHTC rate of 9%.
Other “proactive proposals” have also been floated for the LIHTC program, said David Gasson, vice president at Boston Capital and executive director of the Housing Advisory Group, an organization that advocates on behalf of the housing tax credit.
They include allowing an “income averaging” option at LIHTC properties. Under this proposal, at least 40% of the units in the project would have to be occupied by tenants with incomes that average no more than 60% of the area median income (AMI). No rent-restricted unit, however, could be occupied by a tenant earning more than 80% of the AMI. A project would satisfy the proposed criterion only if the average income of the units is no more than 60% of AMI both (1) calculated with all low-income units weighted equally; and (2) calculated with each low-income units weighted according to imputed LIHTC occupancy rules.
Another idea is to allow unused private-activity bond cap to be converted into LIHTCs.
Both changes have been backed by the Obama administration in recent budget proposals, including the fiscal 2016 plan, according to Gasson.
The Department of Housing and Urban Development (HUD) budget will be another issue for Congress in the months ahead.
“We need to focus on HUD as an industry because it links directly to the LIHTC,” said Orlando Cabrera, industry group leader at the Squire Patton Boggs law firm and former HUD assistant secretary for public and Indian housing.
He highlighted several key programs, including HOME, which is funded at $900 million in fiscal 2015. The White House fiscal 2016 request seeks $1.06 billion. A bill in the House proposes $767 million, but it calls for funding from the National Housing Trust Fund (NHTF) to be diverted to the HOME program to make up for the reduction.
As a result, HOME is being tied to the NHTF, which is about to funded for the first time. At the end of 2014, Mel Watt, director of the Federal Housing Finance Agency, directed Fannie Mae and Freddie Mac to begin setting aside contributions for the NHTF, which would be made available to states in 2016.
About $266 million is estimated for the NHTF, according to Cabrera.
The budget that comes out of the Senate may be closer to the
administration’s mark, he said.