Potential elimination of tax exempt private activity bonds (PAB) which are responsible for about half of the affordable housing development across NYS.
While both the Senate and House versions of tax reform would result in huge deficits that will impact all non-defense spending including homeless housing programs, the House bill (HR 1) that passed on November 16, would have a devastating impact on affordable and supportive housing by eliminating tax exempt private activity bonds (PAB). These bonds provide capital funding in conjunction with the 4% LIHTC. These credits are available as-of-right, and automatically qualify for PABs. They are responsible for about half of the affordable housing development across New York State.
While HR 1 preserves the 9% Low Income Housing Tax Credit (LIHTC), drastic proposed cuts to the corporate tax rate will erode the LIHTC’s value by an estimated 25%.
It is estimated that the state will lose $4.5 billion dollars and 17,000 units of affordable housing annually with these changes. Also eliminated are Historic Tax Credits and New Market Tax Credits, two valuable tools used to spur housing and community development.
The Network, along with a broad swath of affordable housing groups and housing agencies, immediately began advocating against HR1: We alerted our membership to share their opinions about the bill with their representatives; we put out a joint press release; and we published editorials defending the restoration of private activity bonds to the bill. We also led a series of key meetings in Washington, D.C. with several of the Republican representatives whose votes were in play.
In the end, all amendments to the bill were defeated along straight party lines. HR1 passed with 227 votes for, and 205 votes against, with only 13 Republicans voting against it. This group of Republican dissenters includes five New York State representatives: Donovan, Faso, King, Stefanik, and Zeldin, whose opposition was based primarily on the elimination of deductibility for state and local taxes. The PAB cuts are a concern that several of these representatives raised during a press conference explaining their votes. All Democrats voted against the bill.
The Senate Finance Committee introduced its own tax reform bill, after rejecting the House bill unanimously. This bill preserves the PAB, and the 9% LIHTC although, again, the drastic cut to corporate tax rates will lead to the same 25% devaluation of tax credits. It will only require a majority to pass in the Senate, which is closely divided. Both New York Senators are opposed, as are the rest of the Democrats. This bill passed out of the Finance Committee and will face fierce debate on the senate floor. A vote is expected after Thanksgiving recess. If this competing bill passes, the House and Senate will form a reconciliation committee to produce a final version of the bill.
Attempts are also being made to improve both versions of the bill, by addressing the loss of value to the 9% LIHTC, and by adding provisions of the Cantwell-Hatch bill that would improve the efficiency of the program. Some of these provisions may make it into the final Senate bill. Unless the Senate bill fixes the loss in valuation of the credit, there will be a significant loss of capacity to develop affordable and supportive housing.
In other news, The FY 2018 budget has yet to be resolved. At the beginning of the tax reform process the House agreed to the Senate’s higher overall budget numbers, to allow for the Senate to vote on tax reform under reconciliation, which requires a simple majority. In general, the last Senate HUD budget proposal, was the most favorable to supportive housing with modest increases to McKinney and Section 8, and flat funding in other key programs. The final budget details have not been formalized and another short term continuing resolution is expected, as the current CR expires December 8.
The Network will continue to work with our local affordable housing partners and our national partners, including the ACTION Coalition, National Alliance to End Homelessness and the National Low Income Housing Coalition to fight for increased resources for affordable and supportive housing.