LIHTC Industry Edges Close to Permanent 9% Minimum Rate

In a huge win for the affordable housing industry, Congress has included a permanent extension of the 9% low-income housing tax credit (LIHTC) rate in a final tax extenders package.

The House is expected to vote on the plan Thursday or Friday, with the Senate following.

“I think it’s a tremendous victory,” said Peter Lawrence, director of public policy and government relations at Novogradac & Co. “The fixed rate will help give certainty to the LIHTC community in preparing applications to be able to count on the minimum 9%. This will make many deals more financially feasible. That was a complete victory and a testament to the support the housing credit has in Congress.”

Lawrence cited several Congressional leaders for their work in championing the permanent rate, including Reps. Pat Tiberi (R-Ohio) and Richard Neal (D-Mass.) and Sens. Maria Cantwell (D-Wash.) and Pat Roberts (R-Kan.).

Cantwell called the move a “critical fix” to the LIHTC program, the financing tool that has created 2.4 million affordable housing units in the country.

“This is a win-win for affordable housing and good-paying Washington jobs,” she said. “With growing homelessness in Washington state and across the country, we need more affordable housing in our communities. With funding certainty, communities in our state and across the country can better meet the need for affordable housing—making measureable improvements in the lives of low-income families and encouraging private investments that support small businesses and good-paying jobs.”

Cantwell said setting the LIHTC rate at a minimum 9% would end “an era where variable rates made financing of affordable housing less predictable.”

“Congress' decision to make permanent the minimum 9% LIHTC rate in the Protecting Americans from Tax Hikes Act of 2015 is a victory for affordable housing and a testament to the strong bipartisan support for the housing credit that the ACTION Campaign has built over the years,” said Emily Cadik, senior analyst, project director at Enterprise Community Partners.

This provision will significantly strength the housing credit by simplifying program administration, providing predictability, and giving states more flexibility to finance high-priority developments, Cadik said.

Affordable housing industry leaders are optimistic the extenders package will pass, but the vote could be close. Congressional leaders will be working to drum up support for the plan in the next 48 hours.

Winning a permanent 9% fixed rate is the best scenario for the industry. Other alternatives included a two-year extension or a one-year extension, which would have been largely useless.

Setting the minimum rate may seem like a small change, but it has a big impact.

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.

A permanent 4% rate for acquisition deals is not included in the package. A minimum 4% rate technically wasn’t an “extender,” so it’s not a complete surprise it wasn’t included, Lawrence said.

He noted that the extenders bill also includes a provision to make the military housing allowance exclusion from LIHTC income determinations permanent for personnel stationed at or near several select bases.

The New Markets Tax Credit (NMTC) also saw a big win in the tax extenders package. The program received a five-year extension from 2015 to 2019 at its current annual funding level of $3.5 billion. Enacted in 2000, the NMTC helps to stimulate private investment and economic growth in low-income urban neighborhoods and rural communities that lack access to capital needed to support and grow businesses, create jobs, and sustain healthy local economies. 

"The federal NMTC has achieved great results since its implementation, creating nearly 750,000 jobs in economically distressed rural and urban communities and leveraging almost $75 billion in capital for businesses, and community services and facilities," said Bob Rapoza, spokesperson for the NMTC Coalition. "The strong bipartisan support for the federal NMTC in both the House and Senate is a testament to its success in delivering much needed investments for community revitalization projects."

There is additional good news in an omnibus spending bill that was released Wednesday morning. HOME funds would receive $950 million in fiscal 2016, a $50 million increase above fiscal 2015 levels.

The House bill would have cut HOME to $767 million in fiscal 2016, and the Senate bill would have effectively eliminated funding for the program by cutting it to $66 million.

The omnibus spending bill also does not raid any funds from the National Housing Trust Fund (NHTF), which is set to deliver its first resources to states in 2016 for the production, preservation, and operation of predominantly affordable rental housing for extremely low-income households, reported the National Low Income Housing Coalition. The House spending bill would have raided 100% of the NHTF’s money in 2016 and used them to fund the HOME program. The Senate Committee bill did not raid the NHTF program.