As I write this column in late March to assess the last year in federal policy, Congress just reached agreement on an omnibus spending bill to fund federal agencies for the remainder of FY 2018. That legislation provides for a four year, 12.5% increase in the allocation cap for the Housing Credit program, remarkably the only tax provision in the omnibus spending bill other than a provision to correct a mistake dealing with agriculture cooperatives in the “tax reform” bill Congress passed in December.
How did we get this victory and what does it indicate about the future of the Housing Credit program? To get some perspective on that, let’s go back to our efforts in 2017.
Last year, the Housing Credit community continued to put an emphasis on legislation introduced in the Senate, S. 548, providing for miscellaneous changes in the program and a 50% increase in the allocation cap, and legislation introduced in the House, H.R. 1661, that was virtually identical to the Senate bill but without the cap increase. Through a diligent effort by the entire affordable housing community, both bills picked up strong bipartisan support, including a majority of both Republicans and Democrats on the House Ways and Means Committee, and the Republican chairman and ranking Democrat of the Senate Finance Committee.
As we all know, building broad political support for putting more government resources into affordable housing has always been a difficult proposition. In spite of our best efforts to highlight the critical affordable housing shortage that exists in so many of our communities, the various spending programs at HUD have been cut or have remained stagnant for many yearsuntil this current omnibus spending bill. Fortunately, the most important federal housing production program, the Low-Income Housing Tax Credit, is part of the Tax Code and has been insulated from the annual appropriations process that has trimmed federal domestic spending over the years.
But that protected status as a permanent tax provision has been at risk as Congress considered tax reform legislation for the last eight years. In the final bill, our program was spared a direct hit and we are thankful for that result especially since it looked like right until the end the private activity bond program – which accounts for about 40% of Housing Credit production across the country – might be eliminated.
But on closer inspection, the Tax Cuts and Jobs Act (TCJA), was really little more than a general tax cut bill. It included few real reforms and almost no special tax provisions were eliminated. The Housing Credit was not eliminated but neither was any other tax expenditure. And in fact the tax bill included many changes sought by various industries. Yet, in spite of the strong bipartisan support for the House and Senate Housing Credit bills, there was really never any serious consideration to including those provisions in the TCJA. Moreover, the tax writers essentially ignored our proposal to change the credit rate formula to compensate for the lower corporate tax rate.
The result was disappointing. Novogradac and Company estimated the resulting impact from lower equity pricing would cost approximately 235,000 affordable units over the next ten years.
But we were given a reprieve in the omnibus spending bill through the 12.5% increase in the allocation cap for the next four years. Overall, although not necessarily with each development, that should largely compensate for the reduced equity pricing resulting from the TCJA.
How did we achieve this “victory” so soon after being ignored in the TCJA? It was largely due to the efforts of our chief Senate sponsor, Senator Maria Cantwell (D-WA), who doggedly insisted on more resources for affordable housing in the omnibus spending bill if that legislation was going to include a correction to the agriculture cooperative provision in the TCJA. Democratic votes were needed to pass the omnibus and this created leverage to insist on a trade-off for the co-op provision. But the inclusion of the Housing Credit provisions also required the key support of Republicans in both the House and Senate, including Chairman Hatch.
While the Housing Credit provisions were quite limited and we did not get anything near what is needed, this was still a very positive outcome for the Housing Credit showing a level of political support that we can hopefully build upon in the future if we all remain committed to vigorously advocating for affordable housing.