Tax reform was front and center at Affordable Housing Finance’s annual AHF Live: The Affordable Housing Developers Summit, Nov. 14-16, in Chicago.
While industry leaders praised stakeholders for their advocacy efforts over the past year and discussed the different scenarios and ramifications of potential tax reform, Congress continued to move forward at a quick pace.
“Over the past year, I have seen this industry mobilize in a really remarkable way,” said Emily Cadik, director of public policy at Enterprise Community Partners, during the Capitol Hill Update panel. “Everyone has been out doing the work of getting members out to see properties, having those educational meetings, and really preparing for tax reform in a way that we always knew was coming but this year became one of the top priorities for the White House and Congress.”
The low-income housing tax credit (LIHTC) was only one of two corporate tax expenditures retained in the Republicans’ framework released at the end of September.
The LIHTC was retained in the initial House and Senate versions; however, affordable housing production would take a hit across the nation with both versions.
The House version repeals private-activity bonds (PABs), which are used in conjunction with the 4% LIHTC program and help finance roughly half of all LIHTC homes annually. Losing the bonds could mean roughly 60,000 fewer affordable units are built or rehabilitated each year. In addition, the House repeals the New Markets Tax Credit (NMTC) and historic tax credit.
The Senate’s initial version was much more favorable, retaining PABs, keeping the NMTC through 2019, and retaining the historic tax credit although it would be claimed over a five-year period.
Both the House and Senate versions also didn’t make provisions to sustain LIHTC production with a lower corporate tax rate of 20%.
“The House bill retained the LIHTC, so we still have our main tool for financing affordable housing, but it stripped away the financing that triggers half of the deals that happen with this program,” Cadik said. “PABs were not alone. The House was trying to lower the corporate tax rate from 35% to 20%, and that means you have to cut almost everything else to get it into the $1.5 trillion box. But it’s important to remember that the LIHTC is still intact and could have just as easily been repealed in this bloodbath. We should still remember that victory.”
While affordable housing leaders continued to reach out to members of Congress, the House did not include any changes in its mark-up that would restore PABs or changes to protect LIHTC production with a lower corporate rate. On Thursday, the House approved its version of the Tax Cuts and Jobs Act by a vote of 227 to 205, with all Democrats and 13 Republicans voting against it.
However, the Senate Finance Committee during its mark-up did make some additional changes to its tax proposal. Chairman Orrin Hatch (R-Utah) added several no-cost provisions from the Affordable Housing Credit Improvement Act, S. 548, which he co-sponsors with Sen. Maria Cantwell (D-Wash.).
These provisions include:
- Allowing for a reasonable restoration period after a casualty loss.
- Replacing the existing nonprofit right of first refusal with a purchase option to help nonprofit sponsors keep properties affordable for the long term.
- Clarifying that state housing credit agencies have the authority to determine what constitutes community revitalization, with broad parameters, for purposes of determining whether properties are eligible for a basis boost by virtue of being located in a qualified census tract and contributing to a “concerted community revitalization plan."
- Prohibiting local approval and contribution requirements in order to prevent NIMBY opposition from interfering with housing credit development.
- Renaming the LIHTC to the Affordable Housing Tax Credit.
It also retained PABs, the NMTC through 2019, and the 20% housing tax credit, although it would be claimed ratably over a five-year period.
The Senate Finance Committee passed its version of the Tax Cuts and Jobs Act on a party-line vote of 14-12 and will head to the floor when the Senate returns after Thanksgiving recess.
“It’s a start, and Chairman Hatch does care about this issue,” said Rick Goldstein, a partner at Nixon Peabody, during the panel discussion. “That bill will go to the Senate floor, where it may still be subject to further amendments. There’s still some room after the committee is done for some additional things. That will largely be political in nature to make sure they have the votes.”
David Gasson, vice president at Boston Capital and executive director of Housing Advisory Group, said there are rumblings of Senate Republicans being opposed to the bill and the Senate Republicans only have two votes to lose and then vice president Mike Pence will have to step in to vote.
“The debate after Thanksgiving is going to be interesting,” Gasson said.
Jeff Whiting, president and CEO of CREA, also told attendees the industry can’t take anything for granted at this point.
“I think conventional wisdom tells us the Senate version of tax reform is the version that is going to pass—if there is a bill that becomes law, that will be the bill. That is conventional wisdom. Nothing in this process has been conventional,” he said. “You need to continue to reach out to your congressmen and congresswomen. I still think PABs will be in a bill at the end of the day, but we can’t let up.”
The Capitol Hill insiders said it is not clear whether the House and Senate will have a formal conference to resolve differences between their bills or try something similar to what they did with the 2018 budget resolution, where 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.
“I think we will see a bill, but I’m not sure we will see a bill this year,” added Whiting.
Goldstein agreed: “They are going to want to pass something, but it might not look anything like it is today.”