2014 National LIHTC Pool Slightly Deeper than 2013

Published by Michael Novogradac on Tuesday, September 30, 2014 - 12:00am

The Internal Revenue Service (IRS) recently announced that $2.6 million of unused low-income housing tax credit (LIHTC) carryovers for calendar year 2014 were placed in the national pool and reallocated to qualified states.

Background

In most years, some states don’t use all of their allocated LIHTCs. The unused housing credit carryover for a state for any year is the excess of the unused state housing credit ceiling for the previous year over the total housing credit dollar amount allocated for the current year. The five states with the most unused authority contributing to the national pool in 2012, the year with the most recent data available, were:

Blog Chart Five States with the Most Unused Authority Contributing to the National Pool 2012
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Changes from 2013 to 2014

Overall, the changes to the 2014 national pool from the 2013 national pool are modest. Revenue Procedure 2014-52 describes how the approximately $2.6 million of unused LIHTCs in 2014 was distributed among the 35 states and Puerto Rico that had completely used their 2013 LIHTC authority. The national pool in 2014 was equal to about 0.4 percent of the total new per capita allocation authority in 2014.

The five states to receive the most unused LIHTC allocation from the national pool in 2014 were:

Blog Chart Five States with the Most Unused Authority Contributing to the National Pool 2014
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The five states receiving the most unused LIHTC from the national pool are unchanged from 2013. In fact, the 17 states to receive the most unused LIHTC were the same in 2014 and 2013.

Furthermore, each individual state’s allocation from the national pool changed very little between 2013 and 2014. Excluding the states that didn’t receive national pool allocations in 2014 or 2013, the average state received 1.5 percent less in LIHTC allocation in 2014 than it did in 2013. However, the national pool as a whole grew 3.1 percent. The national pool’s growth closely mirrors the 2.9 percent increase in total per capita LIHTC allocations for 2014, suggesting that the growth in unused allocations is simply reflecting the growth in allocations as a whole. That the average state received less while the overall pool still grew illustrates that more states completely used their LIHTC authority and thus were able to access the national pool. The percentage of unused LIHTC carryover out of the total allocation has been stable the last few years.

Even though LIHTC demand is robust at the national level, the allocation process at the state level sometimes results in small amounts of unused authority; these small amounts are often what end up being reallocated through the national pool. Some states tend to utilize all of their LIHTC allocation consistently every year, just as some states tend to not utilize all their LIHTC allocation consistently every year. This consistency causes approximately the same percentage of credits out of the total yearly LIHTC authority to go into the national pool most years.

Changes from 1994 to 1996

 

Blog Graph Unused LIHTC Allocated to National Pool (1994-1996)
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The national pool shrank considerably between 1994 and 1996 for a couple reasons. The LIHTC was made permanent in 1993, making LIHTC investments more appealing, increasing demand for credits and reducing the amount of unused LIHTC. In 1995, the Federal Financial Institutions Examinations Council (FFIEC), the council of bank regulators, updated the Community Reinvestment Act (CRA) regulations. These updates included new provisions that clarified incentives for banks to make LIHTC investments, further driving down the amount of unused LIHTCs and shrinking the national pool. Because of the changes resulting from making the LIHTC permanent and the CRA regulations, 1996 is considered the first full year of the modern age of the LIHTC.

Changes from 1996 to 2014

 

Blog Graph Unused LIHTC Allocated to National Pool (1996-2014)
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The national pool shrank from 1996 to 2002 because LIHTCs allocations weren’t inflation adjusted, and the value of an individual LIHTC dollar shrank over time. By 2003, the Community Renewal Tax Relief Act of 2000 increased the amount of national LIHTC allocations by 40 percent over 2000 allocations and introduced annual inflation adjustments. Because states had considerably more allocations, it isn’t surprising that the size of the national pool increased.

Examining almost two decades’ of national pool data highlights both elements of stability and adjustment. California, Texas, New York and Florida are on the list of five of the states that received the most unused LIHTC from the national pool both in 2014 and cumulatively from 1996 to 2014. Because these states have large populations and routinely utilize their full LIHTC authority, it’s not surprising they received large amounts of unused LIHTC.

 

Blog Chart Five States with the Most Unused Authority Contributing to the National Pool 1996-2014
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In more recent years the amount of unused LIHTC in the national pool has increased modestly each year since 2012, staying roughly within the 3 percent range. The lack of wild swings in recent data contrasts with more variable patterns during the financial crisis that began in 2008. Because the financial crisis dramatically decreased the tax appetite for LIHTC investors, the amount of unused LIHTCs increased. But, thanks in part to the Section 1602 tax credit exchange program created as part of the American Recovery and Reinvestment Act of 2009 that allowed states to exchange 2008 and 2009 LIHTCs for cash grants, the amount of unused LIHTCs decreased. The relative stability of recent years indicates the national pool has returned to a steady trend of growth that closely tracks the increases in total LIHTC allocations.

In addition to indicating how well states are utilizing LIHTCs, it is important to note that having the national pool allocation ensures that the scarce LIHTC resource is used by those states that most need it. This provides a reward to those states, while giving an incentive to states to use their full allocation. Such a mechanism doesn’t apply universally through other tax expenditures or discretionary spending programs; for example, as discussed here previously, private activity bond (PAB) allocations expire after three years and are not reallocated to states that fully utilize their PAB authority.

Overall, the small sum of unused carryover in the 2014 national pool tells a story of stability in the national LIHTC market, because it reveals that most states are able to utilize all or most of their LIHTC allocations. This stability is especially relevant in light of House Ways and Means Committee Chairman David Camp’s, R-Mich.  discussion draft of tax reform legislation that would, among other things, eliminate the national pool. The national pool’s success in maintaining efficiency of LIHTC allocation is a strong argument for retaining the national pool in a reformed tax code.