If you are paying attention to the news, you know that Congress is in the middle of tax reform. If you’ve been getting my action alerts over the past week, you know that the climate has been changing daily. Here is where we stand at the moment, although this may be obsolete by tomorrow.
Last week, Congressional Republicans finally released a tax reform bill that is undergoing mark-up this week. The initial House proposal was a disaster for affordable housing efforts. While the Low Income Housing Tax Credit (LIHTC) was preserved, the drop in the corporate tax rate to 20% would have seen a drop in production nationwide. Even more significant was the proposed elimination of private activity bonds (PABs). The drop in the corporate tax rate coupled with the loss of PABs could reduce Housing Credit production nationwide by as much as two-thirds.
Significance of Private Activity Bonds
In affordable housing production, Housing Finance Agencies and other governmental entities issue bonds that are sold to investors at a lower rate of return because the interest on the bonds is exempt from federal income tax. This translates to lower rents and lower mortgage payments.
In North Carolina, PABs have financed 24,600 affordable rental homes and created 54,000 homeownership opportunities.
If PABs are eliminated as proposed, over $700 million of multifamily development currently underway in North Carolina would come to a halt. The North Carolina Housing Finance Agency has approved or received applications for 61 properties totaling 6,286 units requesting $460,125,000 in tax exempt bond volume, which would finance over $700 million worth of multifamily housing development. The Agency is also preparing to issue $300 million in Mortgage Revenue Bonds that provide mortgages to first-time home-buyers in North Carolina that would cease to exist.
Eliminating PABs as proposed will have a negative effect on roughly $1 billion of housing activity currently underway in North Carolina.
Novogradac estimates that the House’s tax reform proposal would result in the loss of 9,340 rental homes, 10,550 jobs, $888 million in business income, and $341 million in tax revenue over the next 10 years. For more resources on the impact of tax reform on affordable housing production, visit the ACTION Campaign’s Advocacy Toolkit.
Where we stand… in the House
Representative Randy Hultgren (R-IL), who leads the Municipal Finance Caucus is looking to offer an amendment to restore private activity bonds (PABs) in the Rules Committee debate. You can see his speech before the committee here. While North Carolina does not have any members on the Rules Committee, it is crucial that the members of the committee hear from their colleagues about the importance of PABs.
Reach out now to North Carolina’s House members to request that they voice their support for Rep. Hultgren’s amendment preserving PABs to members of the Rules Committee.
A good place to start would be the 7 co-sponsors of the Affordable Housing Credit Improvement Act (HR1661) – Rep. Ted Budd, Rep. George Holding, Rep. David Rouzer, Rep. Walter Jones, Rep. David Price, Rep. Patrick McHenry, and Rep. Mark Meadows (who signed on as a co-sponsor yesterday). As you reach out to them, do not forget to thank them for their support of affordable housing. In particular, Rep. Price has already spoken in support of PABs from the floor.
… in the Senate
Last night, Senate Finance Committee Chairman Orrin Hatch (R-UT) released a new “chariman’s mark.” This updated draft of the Senate’s tax reform proposal preserves PABs, preserves and renames the Low Income Housing Tax Credit to the Affordable Housing Credit, and includes some of the program reforms included in HR1661 and S548. For a detailed summary of the provisions, click here.
What is not included are changes to the Housing Credit that preserve production levels in light of the 20% corporate tax rate. There is a proposal on the table being marked up by the Joint Committee on Taxation that would include a compensating basis boost and a raised credit floor to mitigate decreased production. While it did not make this modified chairman’s mark, the goal is to get it in while the bill is still in the Finance Committee.
- Thank them for retaining the Housing Credit and PABs and for strengthening the Housing Credit;
- Urge them to communicate the necessity of retaining these programs as the Senate moves into negotiations with the House; and
- Urge them to tell Chairman Hatch that further changes must be made to sustain affordable housing production in light of the lower corporate rate.
What comes next
The House is expected to vote on their tax plan by Thursday and then go home for the Thanksgiving break. The Senate Finance Committee is likely to vote their bill out of committee by the end of the week, with the goal of having the whole process wrapped up by Christmas.
However, what has not yet been mentioned in this update is that the new Senate language includes the repeal of the Affordable Care Act’s individual mandate. This change in direction completely shifts the dynamics for passage of a tax reform bill. While it’s impact is unknown, what is known is that the time to intervene in the process is NOW, because the process is moving swiftly.
Finally, if you are not a member of the North Carolina Housing Coalition, we encourage you to join us. Together, we are stronger advocates for thriving communities with opportunity for all.