A final fiscal 2023 omnibus spending bill provides a sizable increase in funding for the Department of Housing and Urban Development (HUD) but fails to expand the low-income housing tax credit (LIHTC) program.

The final version of the bill is frustrating to affordable housing advocates who have been pushing federal lawmakers to pass key LIHTC improvements. Despite the housing credit having strong bipartisan support, an expansion of the program continues to fall short of being included in important legislative packages.

“The spending bill is extremely disappointing since it was really just a spending bill—it did not include tax extenders, disaster tax relief, or any other tax provisions that often accompany a year-end spending bill, aside from provisions that are part of a separately negotiated, bipartisan retirement savings package,” says Emily Cadik, CEO of the Affordable Housing Tax Credit Coalition. “This means the sorely needed housing credit provisions we had been advocating for, which had broad bicameral, bipartisan support, were left on the cutting room floor. Without extending the 12.5% housing credit allocation increase that expired at the end of 2021, Congress is extending a cut to affordable housing production at a time when the need is skyrocketing.”

The bill is also “missing the opportunity to move forward on shovel-ready affordable housing developments by lowering the “50% test” bond financing threshold to increase access to 4% housing credit equity,” she said, noting that those two provisions are estimated to increase affordable housing production by more than 1.5 million affordable homes over the next decade, according to an analysis by the Novogradac firm.

LIHTC champions in Congress were looking for opportunities to include the housing credit improvements in a bill, but the door was essentially closed on tax credit issues this time, according to Cadik.

“Sen. [Maria] Cantwell, Sen. [Ron] Wyden, and others were working hard to get this done. That includes the White House; we had numerous calls with the Domestic Policy Council and National Economic Council staff working to find a way to get this done,” notes David Gasson, partner at MG Housing Strategies and executive director of Housing Advisory Group. “Kudos to the leadership that exists within the Senate and the administration on trying to pass much-needed affordable housing legislation. Politics unfortunately prevented this and other substantive issues from being included in the omnibus.”

Liz Osborn, vice president of policy at Enterprise Community Partners, adds that while it is heartening to see strong funding for housing and community development in the spending package, the exclusion of the LIHTC proposals is a blow to the industry and the households around the country in need of housing.

“Investing in the low-income housing tax credit was the single most impactful step this Congress could have taken to create more affordable homes for people who need them in every state, and its exclusion in the final package is a huge loss,” she says.

There is a possibility of a tax and housing bill in the new year, according to Gasson. “We will do anything it takes to get this housing agenda addressed, but the road ahead will be difficult,” he says.

Supporters are expected to regroup early next year to find another path forward on expanding the housing credit and making other changes to the program.

“Though the general consensus is that it will be difficult to pass any bills in the next Congress, let alone tax legislation, the fact that so many other popular tax provisions were left on the cutting room floor this year does increase the likelihood somewhat of a tax bill next year,” Cadik says. “We will be laying the groundwork and rebuilding support early in the 118th Congress to be prepared for any opportunity to include housing credit provisions.”

HUD Funding

On the positive side, the spending plan gives HUD programs about $61.8 billion, or $8.1 billion more than fiscal 2022-enacted levels, according to the National Low Income Housing Coalition (NLIHC). This is approximately $745 million more than the amount provided in the Senate proposal, and nearly $1 billion less than the amount provided in the House proposal.

It appears the bill will provide enough funding to renew existing contracts through Housing Choice Vouchers (HCV) and project-based rental assistance, with the bill expanding rental assistance vouchers to an additional 12,000 households targeted to families and individuals experiencing or at risk of homelessness.

However, the plan does not include the House’s proposed expansion of the HCV program to an additional 140,000 households, reports NLIHC.

Industry leaders also were pleased that the spending package addresses the Mark-to-Market program.

“The National Leased Housing Association (NLHA) championed that the provision clarifying that HUD has the authority to provide budget-based rent increases for post-Mark-to-Market properties is included. This is a big deal for those properties that were limited to operating cost adjustment factors despite huge operating expenses and rents well below market,” says NLHA executive director Denise Muha. “They also extended the authority to do Mark-to-Market restructuring for five years.”

According to the NLHA, HUD reports that approximately 2,600 Section 8 properties have been restructured under the Mark-to-Market program, which translates to approximately 260,000 units.

“The fact that we finally got them to address this huge portfolio and get some money into a significant amount of properties, that is the bright spot. That’s a lot of aging properties with older residents that will finally see some upgrades that have long been needed,” adds Gasson.

However, housing officials were disappointed that funding was not expanded for other programs.

“Congress has once again failed to make permanent the Community Development Block Grant—Disaster Recovery program in the omnibus federal spending package,” says Rick Lazio, former Congressman and chair of the Enterprise board. “Our communities will feel the impact of this decision after every major disaster, when critical federal recovery funds take months or years to arrive. My former colleagues in Congress would do well to remember that it’s their constituents who bear the consequences of inaction—and we at Enterprise hope lawmakers from disaster-prone regions especially will lead the effort to get these funds permanently authorized early in the new year.”