LIHTC Help Possible as Congress Writes Economic Stimulus Bill

By Caitlin Jones & A. J. Johnson
April 2, 2009 7 min read

Tax Credit Advisor, February 2009: The new, 111th Congress appears likely to approve at least some benefits for the beleaguered low-income housing tax credit industry as part of the economic stimulus bill working its way toward the desk of new President Obama.

A boost in a final bill is possible as well for affordable rental housing generally, and for other federal tax credit programs, including the historic rehabilitation, new markets, and energy tax credits. Some assistance for the municipal bond market also seems probable.

As of January 23, the House Appropriations Committee had approved the spending component of the proposed economic stimulus bill, while the Ways and Means Committee marked up and approved the tax component of the measure. The two pieces were to be melded into a single bill (H.R. 1) for a vote by the full House of Representatives, possibly the week of January 26. The Appropriations Committee on 1/15/09 unveiled the spending portion of the $825 billion economic stimulus bill, which was developed by House Democratic leaders in consultation with Obama transition team members.

The U.S. Senate is also moving toward markup of its own version of the economic stimulus bill. On 1/23/09, the Senate Finance Committee released its own proposed draft component of the economic stimulus bill, or “chairman’s mark,” and announced a markup session for 1/27/09 (description of provisions: http://www.jct.gov/x-10-09.pdf). The Senate Appropriations Committee is expected within the same general time frame to mark up the spending component of the package, to set the stage for a Senate floor vote shortly thereafter.

Congressional Democratic leaders hope to get a final economic stimulus bill to the president’s desk in February.

Tax Credit Provisions

The $275 billion tax package (H.R. 598) approved by the Ways and Means Committee on 1/22/09 contains but one specific proposal to assist the low-income housing tax credit (LIHTC), in particular to try to help pending stalled projects move forward. (Bill and description of provisions: http://waysandmeans. house.gov.)

The provision would establish a temporary initiative to allow state housing credit agencies to exchange a portion of their housing credits to the U.S. Treasury Department for grant funds that they could then use to provide funds to qualified low-income rental housing projects to fill funding gaps. These “subawards” could be made to projects with or without a housing credit allocation, but all projects receiving awards would have to meet the normal LIHTC program requirements, and state agencies would be required to perform or contract for asset management functions to ensure compliance. State agencies would also have to establish a process whereby applicants for subawards must demonstrate that they have already made good faith efforts to obtain equity for their project.

States could exchange up to 100% of their unused 2008 credit authority and credit authority from prior years returned in 2009, plus up to 40% of their 2009 housing credit authority including amounts received in the national pool. The sum of these redeemed credits would be multiplied by 10, and this total then multiplied by 85%, to compute the dollar grant amount.

States would be required to return to the Treasury unused grant funds not provided as subawards before 2011, and subawards returned after 2010.

The Senate Finance Committee draft bill doesn’t include a similar provision. However, it would, unlike H.R. 598, extend to five years from one the carryback period for general business credits received in 2008 or 2009. This would permit taxpayers with business tax credits they can’t fully use in tax years 2008 or 2009 to utilize the excess credits in previous tax years. General business credits are a long list of federal tax credits, including low-income, historic rehabilitation, and new markets tax credits.

Both the Ways and Means and draft Finance Committee bill include a provision that would extend to five years from one the maximum carryback period for use of operating losses by corporate taxpayers.

LIHTC program advocates during the past six weeks submitted proposals to members of Congress, the outgoing Bush Administration, and Obama transition team officials for legislative changes to assist stalled LIHTC projects and try to jumpstart equity investment in housing credits. They sought to have these proposals included in the economic stimulus bill. Among the organizations submitting proposals have been the Affordable Housing Tax Credit Coalition, National Council of State Housing Agencies, National Association of Home Builders, and Enterprise Community Partners.

In the wake of the Ways and Means markup, advocates were still pressing to see if they might manage to get some additional items to benefit the LIHTC program into a final bill.

Some of their proposals have been to: permit more of the housing credit to be claimed in the early years of the 10-year credit period; fix the 30% present value housing credit at a flat 4%; reform the passive loss rules to promote greater LIHTC investment by individual investors; and to appropriate substantial funds that would be provided to state credit agencies for award to developers to fill funding gaps in stalled LIHTC projects.

Advocates for the federal historic tax credit, including the National Trust for Historic Preservation and a new lobbying organization called the Historic Tax Credit Coalition, are pushing specific proposals to enhance the historic rehabilitation tax credit and foster historic preservation that they would like to see included in the economic stimulus bill.

Energy, New Markets Credits

Both the Ways and Means and draft Senate Finance Committee bills would make a series of changes to enhance various existing tax credits for renewable energy equipment and production, such as by extending the placed-in-service deadlines for qualifying facilities, and through other means.

The Finance Committee measure, but not the Ways and Means bill, would provide an extra $1.5 billion in allocation authority for the new markets tax credit program for 2008. This additional authority would be available for award by competition to applicants in the 2008 funding round that either didn’t receive an award, or that received an award of less than their request.

Appropriated Funds

The House Appropriations Committee marked up and approved the $525 billion spending portion of the economic stimulus package on 1/21/09 (bill: http://appropriations.house.gov).

The measure proposes some new funds for affordable rental housing and community development, largely for programs of the U.S. Department of Housing and Urban Development (HUD).

These proposals include:

$5 billion for public housing capital improvement and management activities. Of this, $4 billion would be allocated to public housing agencies (PHAs) under the current formula, with priority to be given to capital projects for which contracts can be awarded within 120 days. The remaining $1 billion would be reserved for competitive grants to public housing authorities for projects that rehabilitate units to improve energy efficiency; that increase affordable housing projects that are ready to proceed; and, that address the housing needs of senior citizens and persons with disabilities.
n $2.5 billion for a new program to fund grants or loans for energy retrofits to HUD Section 8, 202, and 811 rental projects.
An extra $1.5 billion for the Home Investment Partnerships (HOME) program, to help local communities build and rehabilitate low-income housing using green technologies.
An extra $1.5 billion for the Emergency Shelter Grant program to provide short term rental assistance, housing relocation, and stabilization services for families during the economic crisis.
An additional $4.190 billion for the new Neighborhood Stabilization Program, to help communities purchase and rehabilitate foreclosed or vacant properties in order to create more affordable housing and reduce neighborhood blight.

TARP Reform Bill Separately, the House on 1/21/09 approved a bill (H.R. 384) to reform the federal Troubled Asset Relief Program (TARP) that could help spur renewed demand for long-term, fixed-rate tax-exempt housing bonds, as well as other municipal bonds. Provisions would give Treasury broad authority to provide support and assistance to the municipal bond market, including to purchase or provide credit enhancement for tax-exempt bonds.

The bill also clarifies that Treasury can “establish or support facilities to support the availability of commercial real estate loans, including loans for multifamily housing, including through purchases of asset-backed securities.”