In previous Housing Plus blog posts we’ve discussed various tax credit proposals that have been released since the beginning of the year, which include the comprehensive tax reform proposal from House Ways and Means Committee Chairman Dave Camp (R-MI), the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act, which would temporarily extend more than 50 expired or expiring tax provisions, and the proposals included in the Obama administration’s fiscal year 2015 budget. Tax reform has been a popular topic of conversation in tax credit circles all year, and it was the subject of the Legislative Update panel at last week’s National Council of State Housing Agencies (NCSHA) Housing Credit Connect conference in Chicago. The panel was facilitated by Garth Rieman of the NCSHA and included members of the LIHTC industry.
One of the interesting parts of the panel discussion was an attempt to quantify the potential impact of some of the proposals. The panel estimated that the loss of the temporary 9% minimum credit rate alone (the July 2014 rate is 7.56%) would reduce a typical project’s sources and uses budget by about 10-20%. Further, the aggregate effect of the proposals set forth in Chairman Camp’s discussion draft (which, among other reforms, extends depreciation periods and repeals the 130% eligible basis boost) could result in a loss of up to $1 billion dollars in annual investor equity to finance affordable rental housing, and about 33,000-50,000 affordable housing units a year. Broadly, these numbers suggest: (1) a decrease in the overall number of LIHTC projects (particularly if the ability to finance such projects with private activity bonds is repealed), and (2) a deterioration in the quality of LIHTC units due to reduced project budgets.
The panel suggested that the best way to avoid reforms that would be adverse to the affordable housing community is to start educating members of Congress about the importance of affordable rental housing and the viability of the LIHTC program as a means to attract private investment. An effective way to do that may be to invite members of Congress and their staff to ribbon-cutting ceremonies, so that they can talk to residents and observe the impact of the LIHTC program first-hand.
The panel concluded that comprehensive tax reform was unlikely this year, but noted that we may see some legislation after the midterm election, most likely in the form of an extenders package. We’ll be sure to update our readers in future blog posts as reform packages advance through Congress. In the meantime, it may be worthwhile reaching out to your Congressional delegation to highlight LIHTC projects that make a difference in the community.