The House Ways and Means Committee this week released its long-await tax reform legislation, the Tax Cuts and Jobs Act (HR 1). While the bill retains the Low-Income Housing Tax Credit (LIHTC), one of only two business credits preserved, it eliminates several other taxes and bonds that are critical to community development and affordable housing. If passed as-is, the Tax Cuts and Jobs Act would be devastating for communities.
The committee is scheduled to begin mark-up of the bill on Monday, November 6 at 12:00 pm ET, a process that is likely to last several days. This means there is very little time to ask lawmakers to propose changes- contact your Representatives now to tell them to preserve the parts of tax code that are so critical to communities.
The text of the bill is available here and supporting documents are available here.
What’s in the Bill
- Low Income Housing Tax Credit: Maintains the credit
- Corporate Tax Rate: Cut from 35 percent to 20 percent
- New Market Tax Credit: Eliminates
- Private Activity Bonds: Eliminates
- Historic Preservation Tax Credit: Eliminates
- Mortgage Interest Deduction: Caps at $500,000 for new mortgages, savings not re-invested in affordable housing
The Low-Income Housing Tax Credit is preserved, but the 4 percent remains unauthorized. Also missing from the Tax Cuts and Jobs Act is language proposed by Rep. Pat Tiberi (R-Ohio) and Rep. Richard Neal (D-Ma.) in their Affordable Housing Credit Improvement Act (HR 1660). Though NAHRO thanks the Ways and Means Committee for retaining the 9 percent credit, NAHRO opposes other changes to bonds and the corporate tax rate will undermine the effectiveness of the program and essentially eliminate the 4 percent credit.
Private Activity Bonds (PABs) are tax-exempt bonds issued by state and local governments to drive private investments in community development, housing (Housing Bonds), infrastructure and educational projects. The bill would remove the tax exemption for PABs, including multifamily Housing Bonds, which helps finance almost half of all affordable homes produced and preserved by LIHTC.
PABs are responsible for almost half of all affordable homes produced by LIHTC annually, and it is a critical tool that must be preserved. Although the public housing inventory is an integral component of our nation’s infrastructure, chronic underfunding of the Capital and Operating Funds has placed the inventory at risk, with a mounting capital needs backlog of well over $26 billion. PHAs often turn to LIHTC to preserve and revitalize their distressed public housing inventory. A one-pager by the ACTION Campaign on the use of LIHTC for preservation and the impact of Rep. Tiberi’s and Rep. Neal’s bill is available here.
NAHRO members typically seek out 4 percent Housing Credits over the 9 percent because they are non-competitive and more accessible. However, to use the 4 percent Housing Credit, projects must be funded in part with tax-exempt bonds. The House bill’s elimination of tax-exempt bonds could completely devastate the production of affordable housing by NAHRO members.
The Tax Cuts and Jobs Act could also severely handicap the Rental Assistance Demonstration (RAD) program, which depends on LIHTC for its success. RAD allows PHAs to leverage public and private debt and equity to address the capital needs backlog of their public housing portfolios. In RAD, units move from a public housing to a Section 8 platform with a long-term contract that must be renewed, ensuring that the units remain affordable to low-income households. HUD data thus far shows LIHTC has been included in the financing for almost half of all RAD transactions, amounting to over 73,000 units being converted. Additionally, of all of the LIHTC-financed properties participating in RAD, 70 percent of those projects specifically depend on the 4 percent Housing Credit. As a cost-neutral program, Congress has supported RAD by expanding its current cap on conversions to 225,000 units, but eliminating PBAs will undermine their support for RAD.
NAHRO opposes the bill’s repeal of this tax exemption since it would severely hinder the financing of LIHTC projects that provide safe, decent, and affordable housing for our nation’s growing share of low-income renter families.
New Markets Tax Credits (NMTC) help localities build stronger neighborhoods by investing in housing, schools, and other vital projects, and are targeted at helping low-income communities. Over the last 25 years, about $51 billion in NMTC authority have generated $42 billion in local investments, resulting in the creation or retention of over 700,000 jobs, and the financing of over 178 million square feet of commercial real estate and almost 14,000 affordable housing units. NMTCs has proven to be an effective tool for generating private sector investments in communities in need, while still remaining a net positive program for the economy. NAHRO supports the continuation of this program.
Historic Tax Credits also have a proven track record of stimulating economic growth while also preserving our valuable national architectural heritage. We believe that these three important instruments for infrastructure creation and preservation should remain part of our economic development toolbox, and hope that they will be restored in later versions of the bill.
The Ways and Means Committee will begin mark-up of the bill on Monday afternoon. Debate of the legislation and amendments are expected to last up to four days.
Leadership is currently working on changes to the bill to secure votes and ensure it meets the procedural requirements for budget reconciliation in the Senate. The President has also urged lawmakers to include a repeal of the individual health care mandate, a move that could politically complicate its passage. Still, House leadership is optimistic that the bill will pass with few Republican defections before Thanksgiving.
The path through the Senate is less clear; Senator Rand Paul (R-Ky.) voted against the passage of the budget resolution that included the framework for this tax reform legislation and several other Republican Senators have expressed concern about the bill. However, because the Tax Cuts and Jobs Act is being moved forward under the budget reconciliation process, only a simple majority is needed to approve the legislation. Leadership is aiming to have the bill to the President’s desk before adjourning for the holiday recess in December.
As the bill moves forward, NAHRO will provide coverage through the blog, Direct News emails, and @NAHRONational on Twitter.
Jenny Hsu also contributed to this article.