Biden Administration $1.58 Trillion FY 2023 Budget Proposes $71.9 Billion for HUD, $331 Million for CDFI Fund, Permanence for NMTC and Selective Basis Boost for LIHTC
The Biden administration March 28 released its $5.8 trillion fiscal year (FY) 2023 budget request. Of the this amount, $1.58 trillion would be discretionary spending, a $109 billion (7.4%) increase from the recently enacted FY 2022 omnibus appropriation law. The FY 2023 budget request incorporates not only annual discretionary spending and estimates of current law mandatory spending, but also new mandatory proposals, which includes nearly $50 billion in housing and community development-related spending and tax proposals.
According to the U.S. Office of Management and Budget, $813 billion would be provided for defense discretionary spending, a $31.2 billion (4.0%) increase, and $769 billion would be provided for nondefense discretionary spending, a $77.8 billion (11.3%) increase from FY 2022.
The FY 2023 nondefense discretionary budget includes a request of $71.9 billion for the U.S. Department of Housing and Urban Development (HUD), a $6.19 billion or 9.4% increase from FY 2022 appropriations of $65.7 billion, and $331 million for the U.S. Treasury’s Community Development Financial Institutions (CDFI) Fund, a $36.4 million or 12.3% increase from FY 2022. HUD’s FY 2022 budget summary compares funding requests to an annualized FY 2022 continuing resolution amounts, which were in general lower that the FY 2022 omnibus appropriation law enacted amounts.
Housing and Community Development
In addition to the regular discretionary spending request, the FY 2023 budget request included details of the proposed $40 billion of one-time housing and community development spending requests proposed to be overseen by HUD and the CDFI Fund and summarized below:
- $35 billion for a new Housing Supply Fund through HUD that will provide resources for state and local housing finance agencies and their partners to provide grants, revolving loan funds and other streamlined financing tools, as well as grants to advance state and local jurisdictions’ efforts to remove barriers to affordable housing development;
- $5 billion for new CDFI Affordable Housing Supply Fund through Treasury’s CDFI Fund that would support financing for the construction, acquisition, rehabilitation and preservation of both rental and homeownership housing, including accessory dwelling units (ADUs).
The new CDFI Affordable Housing Supply Fund would finance activities that:
- ensure the sustainability, climate resiliency, and energy efficiency of affordable housing through rehabilitation;
- focus on increasing the supply of affordable housing in underserved markets, including single family, small properties (1-4 units) and small multifamily properties with fewer than 100 units;
- create affordable homeownership opportunities through financing the construction and rehabilitation of single-family properties for individuals and families with incomes up to 120% of the area median income (AMI) and up to 150% of the AMI in high-cost areas (including acquisition and rehabilitation);
- preserve and rehabilitate rental opportunities in so called Naturally Occurring Affordable Housing (NOAH);
- finance/support the development of ADUs;
- preserve affordable housing that is at risk of conversion to market rate; and
- expand the supply of affordable housing through innovative approaches consistent with the goals of the program including the conversion of commercial properties to residential and utilization of modular housing.
Homes financed under this program will have 10 years of affordability compliance requirements.
These one-time spending requests are not likely to be considered in the regular budget and appropriations process, and are separate from the administration’s housing, community development and clean energy priorities in the forthcoming negotiations on a successor to the soon to be renamed Build Back Better FY 2022 reconciliation bill. While it is theoretically possible that Congress could consider a FY 2023 reconciliation bill that could contain these proposals, it is extremely unlikely given the fraught and uncertain status of the FY 2022 reconciliation bill. It should be noted that the administration appears to have purposely not included the mandatory spending or tax proposals involving affordable housing, community development and clean energy pending in the FY 2022 reconciliation bill in their FY 2023 request so as not to disrupt the delicate negotiations on that reconciliation bill. It is also not likely that these new FY 2023 mandatory spending proposals will be considered under regular order, which would need 60 votes in the Senate for passage.
Highlights of the FY 2023 HUD and CDFI Fund regular discretionary budget request follow.
Public and Assisted Rental Housing
Project-Based Rental Assistance
The request provides $15 billion for Project-Based Rental Assistance (PBRA), which is more than $1 billion (7.3%) more than FY 2022 and $940 million (6.7%) more than the FY 2022 request. According to HUD, this amount is enough to provide a full 12 months of renewal funding for contracts when they expire throughout the course of FY 2023.
Tenant-Based Rental Assistance
Tenant-Based Rental Assistance (TBRA) is proposed to be funded at $32.1 billion, a $4.76 billion (17.4%) increase from FY 2022 and $1.69 billion (5.5%) increase than the FY 2022 request. Of that amount, $26.2 billion is for Section 8 Housing Choice Voucher contract renewals, which is a $2.14 billion (8.9%) increase from FY 2022, and $1.23 billion (4.9%) more than FY 2022 request. According to HUD, this amount should provide enough annual funding to renew vouchers when they expire over the course of FY 2023.
In addition to providing enough funding to renew all existing vouchers when they expire in FY 2022, the request would provide more than $1.55 billion for 200,000 new incremental vouchers to serve additional households in need. The proposal calls for prioritizing the additional rental assistance for those who are experiencing homeless or fleeing domestic violence. The budget request also includes funding for $455 million in funding for a Mobility Related Social Services program to assist families in finding housing in higher-opportunity neighborhoods with access to jobs, services, schools and other resources.
For the HUD-Veteran Affairs Supportive Housing (HUD-VASH) program, the request provides $5 million, which is $50 million (90.9%) less than FY 2022 and level with the FY 2022 request. The HUD-VASH funding is reserved entirely for Native American veterans. The proposal also provides $220 million for Tenant Protection Vouchers, a $120 million (120%) increase from FY 2022 and the FY 2022 request.
Public Housing Capital and Operating Funds
The budget maintains the merged public housing account established in FY 2022, including operating and capital subsidies and provides a total of $8.78 billion, a $329 million (3.9%) increase from FY 2022 and more than $205 million (2.4%) more than the FY 2022 request. Of this amount, the request provides $3.2 billion in capital subsidies, the same as FY 2022 and FY 2022 request. In addition, the budget proposes $300 million for climate-resilient improvements to public and assisted housing (distinct from the one-time $65 billion in public housing capital repairs and $2 billion in green preservation funding proposed as part of the Build Back Better Act). For operating subsidies, the budget proposes $5.04 billion, a $3.5 million (0.1%) decrease from FY 2022, but $148 million (3.0%) more than the FY 2022 request.
Rental Assistance Demonstration
In a change from previous HUD requests, the budget does not propose to eliminate the public housing cap on the Rental Assistance Demonstration (RAD) program, but instead proposes to eliminate the Sept. 30, 2024, sunset date. Congress could choose to increase the cap in its FY 2023 HUD appropriations bills if it appears likely that the pace of conversions may come up to the current unit cap over the course of the fiscal year. FY 2018 appropriations increased authorization from 225,000 public housing units to 455,000 public housing units. Furthermore, similar to previous requests, the budget requests $110 million in incremental funding million–$50 million from the TBRA account and $60 million from the PBRA account–to facilitate RAD conversions, including conversions that promote the energy efficiency or climate resilience of properties. However, Congress has never provided incremental funding for RAD conversions in any annual spending bills since the demonstration was first authorized in FY 2012.
Community Planning and Development Programs
The Community Development Block Grant (CDBG) account is proposed to be funded at $3.77 billion, a $1.07 billion (22.1%) decrease from FY 2022 and level with the FY 2022 request. However, after accounting for the more than $1.5 billion in economic development initiatives, better known as congressional “earmarks,” the administration proposes an increase as compared to FY 2022. CDBG formula grants are provided $3.55 billion, a $250 million (7.6%) increase from FY 2022, but $195 million less than the FY 2022 request. The administration proposes a new $195 million program to finance community development in underserved communities and incentivize grantees to identify and address regulatory, structural and capacity barriers to revitalize targeted neighborhoods.
The administration proposes $1.95 billion for the HOME Investment Partnerships Program (HOME), a $450 million (30%) increase from FY 2022, and $100 million more than the FY 2022 request.
Homeless and Supportive Housing Programs
McKinney-Vento Homeless Assistance Grants are proposed to be funded at $3.58 billion, $363 million (11.3%) more than FY 2022, and $76 million (2.2%) more than the FY 2022 request. This amount includes a $3.15 billion set-aside for the continuum of care and rural housing stability assistance programs, an increase of $340 million (12%) from FY 2022, and $290 million for Emergency Solutions Grants, the same as FY 2022.
The budget provides $966 billion for the Housing for the Elderly (Section 202) program, a $67 million (6.5%) decrease from FY 2022, but $38 million (4.1%) more than the FY 2022 request. Within this amount, the request includes $100 million in capital advances for new Section 202 homes, which HUD estimates will finance about 1,100 new Section 202 homes.
The Housing for Persons with Disabilities (Section 811) program is proposed to be funded at $288 million, a $64.3 million (18.3%) increase from FY 2022, but $15.7 million (5.8%) more than the FY 2022 request.
The budget would provide $455 million for the Housing Opportunities for Persons with AIDS (HOPWA) program to provide housing and supportive services, a $5 million (1.1%) increase from FY 2022, and the FY 2022 request.
Choice Neighborhoods Initiative
The budget proposes to fund the Choice Neighborhoods Initiative, which is designed to comprehensively revitalize high-poverty public and assisted housing communities, at $250 million, a $100 million (28.6%) decrease from FY 2022 but level with the FY 2022 request.
Housing Trust and the Capital Magnet Funds
The Federal Housing Finance Agency announced Feb. 28 that the Housing Trust Fund (HTF) and Capital Magnet Fund (CMF) will receive nearly $1.14 billion from Fannie Mae and Freddie Mac contributions, the largest amount ever provided. The HTF will receive $740 million, a $29 million increase from 2021, and the CMF will receive $398 million, a $15 million increase from 2021.
The HTF is overseen by HUD and provides funding annually to states for the production or preservation of affordable housing through the acquisition, new construction, reconstruction, and/or rehabilitation of affordable housing. The CMF, overseen by the CDFI Fund, competitively awards entity resources (as opposed to project resources) to finance affordable housing activities, as well as related economic development activities and community service facilities.
In 2021, HUD announced $693 million for the 2019 HTF allocations. The CDFI Fund announced Feb. 22, 2021 more than $175 million in awards for the 2020 round of the CMF, and awards from the pending $380 million 2021 round are expected in summer 2022.
U.S. Treasury’s CDFI Fund
The FY 2022 budget proposes to increase the CDFI Fund to $331 million, a $36.4 million (12.3%) increase from FY 2022 and $3.4 million (0.4%) more than the FY 2022 request.
Treasury “Greenbook” of FY 2023 Tax Proposals
In addition to the low-income housing tax credit (LIHTC) and new markets tax credit (NMTC) proposals described below, Treasury’s “Greenbook” of FY 2023 tax proposals includes:
- Increasing the corporate income tax rate to 28%,
- A proposal for a global minimum tax of 15%, consistent with OECD/G20 framework while noting the need to protect U.S. general business tax credits,
- Increase the top individual income tax bracket to 39.6%,
- Establish a 20% minimum tax generally inclusive of unrealized capital gains for all taxpayers with wealth (the difference obtained by subtracting liabilities from assets) of an amount greater than $100 million,
- Tax carried interest as ordinary income,
- Repealing Internal Revenue Code section 1031 like-kind exchanges,
- Limit deductions in certain syndicated conservation easement transactions, and
- Reform of estate, gift, and generation-skipping transfer taxes.
The FY 2023 Greenbook did not include the set of clean energy tax proposals that were in the FY 2022 Greenbook. As mentioned above, those proposals were likely excluded so as not to disrupt the negotiations on a revised FY 2022 reconciliation bill.
LIHTC Proposal (Cost: $7.87 billion over 2023-32)
The administration proposes to allow allocation agencies to provide a 30% basis boost for private activity bond (PAB) financed properties that create new constructed homes or a substantial rehabilitation that adds a net increase in the amount affordable homes. Unlike the FY 2022 Greenbook LIHTC proposal, there is no requirement to site the properties in areas of opportunity, as proposed to be defined by the administration. The proposal would be effective for buildings that receive more than de minimis financing from PABs that are part of a bond issue with an issue date after the date of enactment.
NMTC Proposal (Cost: $5.46 billion over 2023-32)
As in the FY 2022 Greenbook, the administration proposes to make the NMTC permanent at $5 billion after 2025, the last year of currently authorized allocation. The proposal also would index the annual allocation amount by inflation. However, the budget did not include an explicit request to allow the NMTC to offset alternative minimum tax (AMT) liability, as the New Markets Tax Credit Extension Act (H.R. 1321/S. 456) or the September 2021 House Ways and Means Committee version of the Build Back Better Act would allow.
Normally, the next step in the budget and appropriations process would be for Congress to consider a FY 2023 budget resolution. However, it is not unusual for Congress to forgo formally considering a budget resolution in an election year to allow vulnerable members not to vote on challenging amendments. Senate Appropriations Committee Chair Pat Leahy, D-Vermont, and Vice-chair Richard Shelby, R-Alabama, both of which have announced their retirement at the end of the year, have pledged to work right away on negotiating an overall FY 2023 discretionary budget amount, including allocations for defense and nondefense that could facilitate drafting the 12 annual spending bills. However, it is not clear whether House and Senate leadership will be able to strike a deal soon, and given the likelihood that Republicans may take control of the House and possibility the Senate, it may not be in their interest to strike a deal before the election.
Given this political dynamic and the late start to the process, Congress is not expected to enact all 12 of the FY 2023 spending bills before Oct. 1 when FY 2023 begins. Instead, Congress is likely to consider a continuing resolution after the August recess to fund the government past Sept. 30 and likely through mid-November or early December into a post-election, lame duck session. If Congress is unable to pass tax legislation including a tax title in a revised FY 2022 reconciliation bill before that point, it is possible that Congress could add tax legislation to a FY 2023 omnibus appropriations bill. Tax extenders legislation in particular has a long history of being included in omnibus appropriations bills. If they are not already addressed in a revised FY 2022 reconciliation bill, the 12.5% increase in 9% LIHTC allocations, the renewable energy production tax credit, and the 26% renewable energy investment tax credit, all of which expired at the end of 2021, could be included in such lame duck tax extenders legislation. Stay tuned.