1. TAX REFORM: Two words that strike fear in the low-income housing tax credit (LIHTC) industry. The LIHTC has been the nation’s most successful affordable housing development tool, spurring the creation of about 2.4 million rental homes since 1987. It has enjoyed strong bipartisan support over the years, but with a big federal deficit and a rancorous Congress, everything is on the table, including the possible elimination or reduction of the LIHTC program. There are no sacred cows.
The elimination of tax expenditures was floated by the co-chairs of the National Commission on Fiscal Responsibility and Reform, better known as the Deficit Commission, two years ago. Their draft plan did not specifically name LIHTCs or bonds, but addressed all tax programs in general. This proposal by Erskine Bowles, chief of staff to President Clinton, and Alan Simpson, former Republican senator from Wyoming, did not go anywhere at the time, but the possibility of the LIHTC getting lumped in with larger tax reform efforts still looms.
During a real estate policy forum at the recent Republican National Convention, Sen. Johnny Isakson (R-Ga.) said he thought the best approach to tax reform would be to put the entire tax code on the table to look at all the enhancements, credits, deductions, and expenditures and see if they are justified.
“I fully understand the value of the low- and moderate income housing tax credit,” he said. “That is a tremendous program that attracted capital to a place capital wasn’t flowing. Good projects were built, and that has a good public purpose. The mortgage interest deduction on the first mortgage on a single-family loan is critical, but we have to make sure that we examine everybody and everything, and the most important thing we can do is simplify our code, raise aspirations and expectations, and get people investing and spending money again.”
2. LIHTC LIMBO: There are several unresolved issues with the housing credit program that need to be addressed. A key one is the fate of the fixed 9 percent credit rate. Sens. Olympia Snowe (R-Maine) and Maria Cantwell (D-Wash.) are calling for the fixed rate to be extended past the current placed-in-service deadline of Dec. 30, 2013, and included an amendment to a package of tax extenders in August. Its outcome remained undecided at press time.
There are a number of other proposals out there as well, including a bill that would allow formerly homeless full-time students to be eligible for a LIHTC apartment and another aimed at encouraging more seniors apartments to be developed.
In addition, federal housing officials have floated the idea of an “income-averaging” option that allows properties to serve households whose average income is no greater than 60 percent of the area median income and with no individual household above 80 percent.
3. KILLING HUD?: Public and affordable housing barely gets talked about during the long election campaign.
However, the Department of Housing and Urban Development (HUD) did get a rare mention by Republican presidential nominee Mitt Romney this spring. Speaking at a private fundraising event in Florida, Romney revealed that he was thinking about eliminating or combining federal agencies.
“Things like Housing and Urban Development, which my dad was head of, that might not be around later,” he said in comments heard by reporters outside the event.
Romney’s father, George, headed HUD from 1969 to 1973.
Housing advocates dismissed the comments as “campaign rhetoric” while stressing the importance of the agency for America’s families, seniors, veterans, and the homeless. HUD officials declined to comment at the time.
The elimination of HUD is unlikely, but budget cuts are real. Funding for a number of programs, including public housing and rental assistance, could be reined in.
Perhaps, President Barack Obama’s biggest move at HUD was his first, selecting Shaun Donovan, former head of the New York City Department of Housing Preservation and Development, to be secretary and bringing in other leaders with deep housing experience. That hasn’t always been the case, with former mayors and other political appointees holding the post in the past.
The administration and direction of HUD can’t help but be a top issue for the industry in the next term.
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Reprinted with permission from Affordable Housing Finance, a publication of Hanley Wood © October 2012