On Thursday, November 2, Speaker Paul Ryan (R-WI) and House Ways and Means Committee Chairman Kevin Brady (R-TX) unveiled their long-awaited tax reform plan. H.R. 1, the Tax Cuts and Jobs Act, delivers substantial tax cuts, including a significant reduction in the top corporate income tax rate. To offset the cost of the cuts, many current tax incentives are eliminated or substantially modified in the legislation. We want to bring to your attention the impact of the bill on affordable housing production. The bill would:
- Lower the top corporate tax rate from 35 percent to 20 percent, effective January 1, 2018, and eliminate dozens of tax expenditures in order to achieve the lower rate.
- Retain the Low-Income Housing Tax Credit with no proposed changes. None of the broadly-supported provisions from the Affordable Housing Credit Improvement Act (H.R. 1661) were included.
- Eliminate the tax exemption on private activity bonds, including multifamily Housing Bonds. This tax exemption allows bond-financed multifamily projects to access 4% Housing Credits. Eliminating the tax exemption would eliminate these bond/4% transactions after 2017.
- Eliminate New Markets Tax Credit (NMTC) allocation authority after 2017. The NMTC is currently authorized through 2019, meaning this legislation would rescind two years of allocation authority that had already been made available.
- Repeal the historic rehabilitation credit beginning in 2018.
- Phase out solar, wind and numerous other energy credits.
Despite maintaining the Housing Credit, the bill would devastate production under the program by eliminating private activity multifamily Housing Bonds. Eliminating the tax exemption would eliminate these bond/4 percent transactions after 2017. Coupled with the lower corporate tax rate, which would reduce investor interest in the Housing Credit without other changes to the Credit, the loss of Housing Bonds could reduce annual production by up to two-thirds annually.
This is particularly devastating to California. In 2016, the state received $2.2 billion worth of 4% housing credits and deployed more than $6 billion of private activity tax exempt bond authority for multifamily and single housing. These two funding sources created or preserved more than 20,600 affordable homes in 2016, of which 19,275 homes were for households earning 60% or less of Area Median Income. Over 6,699 housing units involve new construction and 5,037 of the 20,600 homes have been set aside to house our most vulnerable populations: seniors and households with special needs individuals. This $2.2 billion commitment is more than double the $920 million of capped 9% housing credits that California invested in affordable housing.
Chairman Brady plans to mark up H.R. 1 beginning on Monday, November 6, and will be releasing his “Chairman’s mark,” which will reflect additional changes to the initial bill. He also has indicated that members of the Ways and Committee will have an opportunity to offer amendments during the markup.
If you would like more information on the process please visit this blog post by Enterprise Community Partners.
Action Needed
This is a critical time to weigh in with members of Congress urging them to:
- Preserve the tax exemption on multifamily Housing Bonds.
- Make adjustments to offset the impact of a lower corporate rate on Housing Credit investment to ensure that the amount of Housing Credit equity per development is not substantially decreased. More detailed proposals on the adjustments needed are forthcoming, but in the meantime we encourage members to simply convey the message that modifications will be needed.
- Include the provisions to strengthen the LIHTC from the Tiberi-Neal Affordable Housing Credit Improvement Act (H.R. 1661). This legislation has overwhelming bipartisan support and would make significant strides towards making the program more streamlined and flexible, many of which are low- or no-cost.
- Retain the New Markets Tax Credit (NMTC) and the Historic Tax Credit (HTC), because they are essential tools for attracting private investment to communities that need it.
You can find your representative’s contact information here (search by zip code of development). It is particularly important to contact Republican members.
