The new year began with a major victory for the low-income housing tax credit (LIHTC). Congress’ fiscal cliff package, agreed upon late Jan. 1, included an extension of the 9 percent floor for the LIHTC. The 9 percent floor, originally set in 2008 by the Housing and Economic Recovery Act, had effectively expired. But now, any projects receiving allocations by the end of 2013 may use the minimum 9 percent credit rate instead of the monthly floating rate, which is closer to 7.36 percent. This extension will ensure more equity can go into any one given project and increase the financial viability of LIHTC deals.
The fiscal cliff legislation also prevents income taxes from increasing on those earning less than $450,000, ends tax breaks for top earners, delays sequestration (the approximately $109 billion in automatic across-the-board spending cuts) until March 1, continues expanded unemployment benefits for one year, and includes a number of other tax extenders.
Aside from the 9 percent floor, the extenders package includes another LIHTC-related provision in the continued exclusion of military basic housing allowances from income qualification calculations (for both the LIHTC and tax-exempt private-activity multifamily housing bonds) from Jan. 1, 2012, to Jan. 1, 2014. It also contains two additional years of New Markets Tax Credit allocations at $3.5 billion annually, an extension of the ability to exclude discharged mortgage debt from taxable income, and an extension of the ability to deduct the cost of mortgage insurance on a qualified personal residence from taxable income.
The extension of the 9 percent floor is a major achievement. But there are still challenges ahead in 2013, both in protecting the LIHTC in tax reform and in extending the 9 percent floor permanently. The administration and Congress have identified corporate tax reform as a top bipartisan priority for 2013, and during the fiscal cliff negotiations the administration asked Congress to set a deadline for tax reform of Aug. 1. Many members of Congress have urged an approach to corporate tax reform that would involve eliminating or severely cutting as many credits and deductions as possible; any credit or deduction would have to be newly justified, along with its corresponding tax increase.
The case for the LIHTC is strong. It is the nation’s most successful affordable housing production program and a major job creator. The industry received extensive bipartisan support for its efforts to strengthen the credit in the 112th Congress. And the ability to provide high-quality affordable housing efficiently will become even more important as the industry faces likely spending cuts to other affordable and assisted housing programs, especially once the delayed sequestration battle restarts again in a couple of months—coinciding with a renewed debt ceiling debate.
But a new Congress—with the pressure to address tax reform—demands a new effort on the industry’s part. The industry must make sure that key members of Congress and their staffs understand the LIHTC and its impact in their communities well before a comprehensive tax bill is drafted. Sen. Maria Cantwell (D-Wash.) and Rep. Patrick Tiberi (R-Ohio) have been invaluable champions of the program, and the industry will be counting on their continued support, but many others are needed to join them in demanding that the LIHTC is not harmed by tax reform.
Enterprise Community Partners, the National Council of State Housing Agencies, and many other key LIHTC stakeholders are part of the A.C.T.I.O.N. (A Call to Invest in Our Neighborhoods) Campaign, which boasts over 400 national, state, and local organizations, representing all corners of the affordable housing industry in all 50 states. Heading into the 113th Congress, the group's strategy includes a three-part approach of legislative advocacy, coalition building, and outreach to opinion leaders and local and national media to persuade key members of Congress to stand up for the LIHTC, even while other tax credits and deductions are being cut.
The coalition will regroup in early 2013 to develop a strategy to protect the credit in tax reform, to extend the 9 percent floor, and institute a similar floor for 4 percent allocated credits on a permanent basis.
You can learn more about the A.C.T.I.O.N. Campaign by visiting www.rentalhousingaction.org.
Peter Lawrence is senior director of Public Policy & Government Affairs for Enterprise Community Partners. He leads the execution of Enterprise’s policy and advocacy agenda. Emily Cadik is a senior policy analyst at Enterprise, where she is focused primarily on the A.C.T.I.O.N. Campaign. Prior to joining Enterprise, she worked at the Department of Housing and Urban Development.