After much anticipation, the Senate Finance Committee released a tax reform bill that is significantly better for affordable housing than the House proposal.
Both versions retain the low-income housing tax credit (LIHTC), but the Senate legislation also preserves private-activity bonds (PABs). This is an important change from the bill passed by the House Ways and Means Committee this week, which eliminates the bonds.
PABs, which are used in conjunction with the 4% LIHTC program, help finance roughly half of all LIHTC homes annually, and losing the bonds could mean roughly 60,000 fewer affordable units are built or rehabilitated each year.
“We are very pleased that the Senate retained private-activity bonds and rejected the House proposal,” says Emily Cadik, director of public policy at Enterprise Community Partners.
In another move, the Senate proposes to lower the corporate tax rate from 35% to 20%. This is notable because without modifying the LIHTC program, this change would make the housing credit worth less and could diminish investor appetite.
“We are still working with Chairman Hatch and other Republican senators on the committee to see if there is an opportunity to add language to offset the impact on housing credit investment as the bill moves through the committee,” Cadik says.
Housing advocates are hopeful that changes can be made to the Senate bill over the weekend and early next week as the Senate Finance Committee begins its mark up of the legislation.
The Senate bill also proposes that the lower corporate tax credit begin in 2019, a year later than in the House plan. This could be a major point in negotiations and how that is resolved could factor into how much revenue is available for programs like the LIHTC and other tax credits.
Historic and NMTCs remain
Unlike the House bill, the Senate plan retains the historic tax credit, but it reduces the percentage of qualified rehabilitation expenses eligible for the credit from 20% to 10%. Historic tax credits have often been used to preserve and adapt older buildings into affordable housing.
In another move, the Senate also seeks to keep the New Markets Tax Credit (NMTC) through 2019.
“We are very glad the New Markets Tax Credits was retained as currently authorized in the Senate bill,” Cadik says. “The credit is unfortunately only authorized through 2019. While we believe it should be a permanent part of the tax code, we are glad that the Senate rejected the House proposal to claw back two years of New Markets Tax Credit allocation authority that had already been authorized.”
What’s next?
Both houses of Congress have more work to do.
The full House is expected to vote on its bill next week. An early timeline had both the House and Senate voting on their tax bills before Thanksgiving, but it now appears the Senate may vote on its legislation after the holiday recess.
A question remains as to whether the House and Senate will take a conference committee approach to resolve the differences in their bills in December or try something similar to what they did with the 2018 budget resolution, according to Cadik. In the latter case, the Senate would approve a bill that it knows can also clear the House and then have the House pass that bill, a move that is more expedient.
