The effectiveness of the lowincome housing tax credit program could be improved by easing the restrictions on combining the credit with other federal subsidies, according to witnesses at a recent hearing of the House Ways and Means Committee’s subcommittee on select revenue measures.

“We urge Congress to remove various restrictions that make it hard to coordinate housing credits with other federal policies and programs,” said Benson F. Roberts, senior vice president for policy and program development at the Local Initiatives Support Corp. “These restrictions frustrate efforts to address local needs, and add unnecessary legal and accounting costs.”

One target was the current provision barring HOME-assisted projects in difficult development areas and qualified census tracts from receiving the 30 percent basis increase generally available to projects in such areas.

Steve Lawson, testifying on behalf of the National Association of Home Builders, also criticized the requirement to reduce eligible basis for grant programs like HOME and the Federal Home Loan Bank Affordable Housing Program (AHP).

“This process is costly and reduces funding available for bricks and mortar,” Lawson said. “Allowing grants like HOME and AHP to be included in eligible basis would decrease transaction costs and increase funds available for developing affordable housing.”

Other recommendations included eliminating the ban on combining tax credits with Sec. 8 moderate rehabilitation assistance, allowing the 9 percent credit to be taken on projects with other federal subsidies, and providing greater flexibility in using credits with tax-exempt bonds.

Shaun Donovan, commissioner of the New York City Department of Housing Preservation and Development, suggested a bond financing structure with three classes of tenants, including 20 percent at the current tax credit level, 20 percent to 30 percent at incomes up to 80 percent of the area median income (AMI), and 50 percent to 60 percent at market rate. Tax credits at a rate of 6 percent to 8 percent would be available for all units housing tenants earning up to 80 percent of the AMI.

Roberts also called for expansion of the credit-eligible income range to as high as 90 percent of the AMI, as long as the average in a project doesn’t exceed 60 percent.

Several witnesses offered recommendations to increase the eligible basis for certain tax credit projects.

Voucher reform bill wins round one

The House Financial Services Committee has approved a wide-ranging Sec. 8 voucher reform bill (H.R. 1851) that would change the income calculation rules for Sec. 8 and public housing, revise inspection requirements, and modify the allocation formula for voucher funding.

The bill would also authorize a 100,000-unit expansion in the voucher program over five years.

In addition, the measure would create a new housing innovation program (HIP) to replace the Moving-to-Work program, which currently allows a limited number of public housing authorities (PHAs) to combine Sec. 8 and public housing funds in locally tailored programs with waivers of some Department of Housing and Urban Development (HUD) regulations.

Up to 60 PHAs could participate in HIP, and HUD could authorize an additional 20 for a more restrictive version with tighter tenant protections.

Under the revised income rules for Sec. 8 and public housing, once a family’s income is determined upon the initial provision of housing assistance, a PHA or owner could use the preceding year’s income as the basis for subsequent determinations. As an incentive to work, the earned income to be taken into account would be the prior-year earned income minus 10 percent, or the lesser of the prioryear amount or $10,000.

While most families’ incomes would be reviewed annually, families on fixed incomes would only have to be reviewed every three years and would self-certify their income in the intervening years.

Families would generally be prohibited from receiving Sec. 8 or public housing assistance if they had more than $100,000 in net family assets or they own a home.

Inspections of voucher units would be required biennially, rather than annually, after the initial inspection. In addition, if a property has been determined to meet the housing quality and safety standards of any federal program in the previous 12 months, a PHA could authorize occupancy before the initial voucher inspection is completed, with housing assistance payments retroactive to the beginning of the lease term if the unit passes inspection.

If a unit fails a biennial inspection, the PHA would withhold housing assistance and could use the funds to pay for repairs. The owner could not terminate the tenancy or refuse to renew the lease in such a situation.

The current requirements to target Sec. 8 and public housing assistance to families with incomes below 30 percent of the AMI would be revised to target families at or below the higher of either 30 percent of the AMI or the federal poverty line.

The bill would also increase the limits on project-based vouchers, raising the basic cap from 20 percent to 25 percent of a PHA’s voucher funding, with an additional 5 percent allowed to house the homeless. The per-structure limit would be the greater of 25 units or 25 percent of the total units, with an increase to 50 percent permitted in areas where voucher utilization is tight.

GSE reform bill moves forward

The House has passed a major government- sponsored enterprise (GSE) regulatory reform bill (H.R. 1427) that would create a new affordable housing fund financed by Fannie Mae and Freddie Mac.

The bill would create the Federal Housing Finance Agency (FHFA) to replace the Office of Federal Housing Enterprise Oversight and the Federal Housing Finance Board as the regulator of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. Regulatory authority would be vested in the FHFA director.

The FHFA would also administer the affordable housing fund, which would be funded with annual contributions of 1.2 basis points for each dollar in the Fannie Mae and Freddie Mac mortgage portfolios. The fund would have a five-year life.

The new regulator could also limit the Fannie Mae and Freddie Mac mortgage portfolios for safety and soundness reasons, but its authority in this area was restricted by a House floor amendment limiting its consideration to the conditions of the GSEs themselves, rather than the broader financial system, as the Administration wanted.

Hurricane recovery efforts

The supplemental appropriations bill (H.R. 2206) passed by Congress and signed by President Bush resolves some concerns about the use of low-income housing tax credits to support Gulf Coast hurricane recovery efforts.

In providing additional tax credits for the Gulf Opportunity (GO) zones in 2005, Congress designated the zones as difficult development areas (DDAs), making projects in those areas eligible for a 30 percent basis increase, but only for projects placed in service by the end of calendar 2008.

The supplemental funding bill extends the placed-in-service date for the DDA designation and for all GO zone credits until the end of 2010, eliminating the 10 percent expenditure test for carryover allocations.

Barry G. Jacobs is editor of Housing and Development Reporter, the nation’s premier source for in-depth, factual coverage of all aspects of affordable housing and community development. The two-part publication includes informed reports and insightful analyses in “HDR Current Developments,” and an always up-to-date compilation of essential documents in the “HDR Reference Files.” Jacobs is also the author of the annually updated HDR Handbook of Housing and Development Law. For more information, call (800) 723-8077.