The Biden administration March 9 released its $6.9 trillion fiscal year (FY) 2024 budget request. Of the this amount, $1.73 trillion would be discretionary spending, a $96 billion (5.9%) increase from the enacted FY 2023 omnibus appropriation law. The FY 2024 budget request incorporates not only annual discretionary spending and estimates of current law mandatory spending, but also new mandatory proposals, which includes $111 billion in housing and community development-related spending and tax proposals.

Overview

According to the U.S. Office of Management and Budget, $886 billion would be provided for defense discretionary spending, a $28 billion (3.3%) increase from FY 2023, and $841 billion would be provided for nondefense discretionary spending, a $68 billion (8.8%) increase from FY 2023.

The FY 2023 nondefense discretionary budget includes a request of $73.3 billion for the U.S. Department of Housing and Urban Development (HUD), a $1.15 billion, or 1.6%, increase from FY 2023 gross appropriations of $72.1 billion, and $341 million for the U.S. Treasury’s Community Development Financial Institutions (CDFI) Fund, a $17 million, or 5.3%, increase from FY 2023.

Housing and Community Development Mandatory Spending Proposals

In addition to the regular discretionary spending request, the FY 2024 budget request included details of the proposed $60 billion of one-time housing and community development mandatory spending requests proposed to be administered by HUD summarized below:

• $22 billion for new Tenant Based Rental Assistance, $9 billion of which would fund new vouchers for 20,000 youth that are estimated to age out of foster care annually and $13 billion of which would fund 50,000 new vouchers in 2025 targeted to an estimated 450,000 extremely low-income (ELI) veteran families that are currently without rental assistance;
• $10 billion for planning and housing capital grants to incentivize state and local jurisdictions to expand supply and increase housing choice by reducing barriers to the development of affordable housing;
• $10 billion to target down payment assistance to first-time homebuyers whose parents do not own a home and are at or below 120% of the area median income or 140% of the area median income in high-cost areas. Eligible activities would include costs in connection with acquisition such as down payment costs, closing costs, and costs to reduce the rates of interest on eligible mortgage payments;
• $7.5 billion for new Project-Based Rental Assistance (PBRA) contracts with private for-profit or nonprofit owners, which the administration plans to coordinate with rental housing supply initiatives to ensure such new rental housing is affordable to the lowest income households;
• $7.5 billion to address the capital needs of the most distressed public housing properties nationwide; and
• $3 billion for competitive grants to promote state and local efforts to reform eviction policies by providing access to legal counsel, emergency rental assistance, and other forms of rent relief.

These one-time mandatory spending requests are not likely to be considered in the regular budget and appropriations process, and unlikely to pass in a divided Congress. They illustrate the administration’s strong desire to address housing unaffordability and challenges in housing markets nationwide, but given expected Republican opposition, these requests aren’t likely to advance.

Highlights of the FY 2023 HUD and CDFI Fund regular discretionary budget request follow.

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Public and Assisted Rental Housing

Project-Based Rental Assistance

The request provides $15.9 billion for discretionary PBRA funding, which is $892 million (6.7%) more than FY 2023 and $831 million (6.0%) more than the FY 2023 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 2024.

Tenant-Based Rental Assistance

Discretionary Tenant-Based Rental Assistance (TBRA) is proposed to be funded at $32.7 billion, a $2.45 billion (8.1%) increase from FY 2023 and $573 million (1.8%) increase from the FY 2023 request. Of that amount, $27.8 billion is for Section 8 Housing Choice Voucher contract renewals, which is a $1.44 billion (5.4%) increase from FY 2023, and $1.6 billion (6.1%) more than FY 2023 request. According to HUD, this amount should provide enough annual funding to renew vouchers when they expire over the course of FY 2024.

In addition to providing enough funding to renew all existing vouchers when they expire in FY 2024, the request would provide more than $565 million for 50,000 new incremental vouchers to serve additional households in need. The proposal calls for prioritizing the additional rental assistance for those who are experiencing homelessness or fleeing domestic violence. The budget request also includes funding for $25 million in funding for the Mobility Related Social Services program to assist families in finding housing in higher-opportunity neighborhoods with access to jobs, services, schools and other resources.

The proposal also provides $385 million for Tenant Protection Vouchers, a $48 million (14.2%) increase from FY 2023 and a $165 million (75%) increase from the FY 2023 request. This amount will help make Rental Assistance Demonstration (RAD) conversion more financially feasible. For the HUD-Veteran Affairs Supportive Housing (HUD-VASH) program, the request provides $5 million, which is $53 million (91.3%) less than FY 2023 and level with the FY 2022 and 2023 requests. The proposed HUD-VASH funding is reserved entirely for Native American veterans.

Public Housing Capital and Operating Funds

The budget provides a total of $8.89 billion, a $379 million (4.5%) increase from FY 2023 and $113 million (1.3%) more than the FY 2022 request. Of this amount, the request provides $3.23 billion in capital subsidies, a $25 million (0.8%) increase from FY 2023 and the FY 2023 request. For operating subsidies, the budget proposes $5.13 billion, a $24 million (0.5%) increase from FY 2023, and $98 million (1.9%) more than the FY 2023 request.

Rental Assistance Demonstration

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 2024 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. The FY 2018 appropriations law increased authorization from 225,000 public housing units to 455,000 public housing units. The budget also requests extending eligibility for RAD conversations to senior preservation rental assistance contracts (senior PRACs).

Furthermore, similar to previous requests, the budget requests $112 million in incremental funding million–$50 million from the TBRA account and $62 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.

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 $185 million, a $165 million (47.1%) decrease from FY 2023 and a $65 million (26%) decrease from the FY 2023 request.

Community Planning and Development Programs

The Community Development Block Grant (CDBG) account is proposed to be funded at $3.42 billion, a nearly $3 billion (46.6%) decrease from FY 2023 and $355 million (9.4%) decrease from the FY 2023 request. However, after accounting for the nearly $3 billion in economic development initiatives, better known as congressional “earmarks,” the administration proposes essentially level funding as compared to FY 2023. CDBG formula grants would be provided $3.3 billion, equal to FY 2023 and the FY 2023 request. The administration proposes to continue the new $85 million program originally established in the FY 2023 omnibus appropriations law to incentivize state and local governments to reduce regulatory barriers to affordable housing.

The administration proposes $1.8 billion for the HOME Investment Partnerships Program (HOME), a $300 million (20%) increase from FY 2023, but $150 million (7.7%) less than the FY 2023 request.

Homeless and Supportive Housing Programs

McKinney-Vento Homeless Assistance Grants are proposed to be funded at $3.75 billion, $116 million (3.2%) more than FY 2023, and $173 million (4.8%) more than the FY 2023 request. This amount includes a $3.4 billion set-aside for the continuum of care and rural housing stability assistance programs, an increase of $250 million (7.9%) from FY 2023, and $290 million for Emergency Solutions Grants, the same as FY 2022 and FY 2023.

The budget provides $1.05 billion for the Housing for the Elderly (Section 202) program, a $33 million (3.2%) increase from FY 2023, and $53 million (5.3%) more than the FY 2023 request. Within this amount, the request includes $110 million in capital advances for new Section 202 homes, which HUD estimates will finance about 1,000 new Section 202 homes.

The Housing for Persons with Disabilities (Section 811) program is proposed to be funded at $356 million, a $4 million (1.1%) decrease from FY 2023, but $68 million (23.7%) more than the FY 2023 request.

The budget would provide $505 million for the Housing Opportunities for Persons with AIDS (HOPWA) program to provide housing and supportive services, a $6 million (1.2%) increase from FY 2023, and $50 million (11%) more than the FY 2023 request.

U.S. Treasury’s CDFI Fund

The FY 2022 budget proposes to increase the CDFI Fund to $341 million, a $17 million (5.4%) increase from FY 2023 and $10 million (3.0%) more than the FY 2023 request. Of this amount, $201 million would be for the financial/technical assistance awards, a $5 million (2.6%) increase from FY 2023 but $14 million (6.6%) less than the FY 2023 request. Furthermore, the budget continues to propose the CDFI Bond Guarantee program at a $500 million authorization level as authorized for FY 2023 and the FY 2023 request, but this year for the first time the budget proposes $10 million to subsidize the bond guarantees, which would enable greater eligibility for CDFIs to participate.

Treasury “Greenbook” of FY 2023 Tax Proposals

In addition to the low-income housing tax credit (LIHTC), neighborhood homes tax credit (NHTC) and new markets tax credit (NMTC) proposals described below, Treasury’s “Greenbook” of FY 2024 tax proposals includes to increase tax revenue by:

• Increasing the corporate income tax rate to 28%,
• A proposal to conform the U.S. tax code with the global minimum tax of 15%, consistent with OECD/G20 (Pillar 2) framework,
• Increase the top individual income tax bracket to 39.6%,
• Establish a 25% minimum tax generally inclusive of unrealized capital gains for all taxpayers with wealth (the difference obtained by subtracting liabilities from assets) of greater than $100 million,
• Apply the net investment income tax (NIIT) to pass-through business income of high-income taxpayers, increase the NIIT rate, and increase the additional Medicare tax rate by 1.2 percentage points for taxpayers with more than $400,000 of earnings to establish a 5% rate,
• Tax long-term capital gains and qualified dividends of taxpayers with taxable income of more than $1 million would be taxed at ordinary rates, with 37% generally being the highest rate (40.8% including the NIIT),
• Tax carried interest as ordinary income,
• Repealing Internal Revenue Code section 1031 like-kind exchanges, and
• Treat transfers of appreciated property by gift or on death as realization events.

It should be noted that given the divided Congress and the lack of Republican support for these tax increase proposals, it is very unlikely they will be enacted. However, there exists bipartisan and bicameral support for the following community development tax incentive proposals, which as such have a better chance of enactment.

LIHTC Proposal (Cost: $28.259 billion over 2024-33)

The administration proposes to:

1. Increase 9% LIHTC allocations to:
   
   1. $4.25 per capita and $4,901,620 for small states in 2024,
   2. $4.88 per capita and $5,632,880 for small states in 2025, and
   3. Adjust the 2025 amounts for inflation for 2026 and subsequent years.
      
      Note: These amounts slightly lower than what Sen. Wyden proposed in the recently reintroduced Decent, Affordable and Safe Housing (DASH) for all Act (S. 690) and what is expected in the forthcoming reintroduction of the Affordable Housing Credit Improvement Act (AHCIA), which are $3.90 per capita ($4,495,000 for small states) for 2023 and $5.05 per capita ($5,865,000 for small states) for 2024, with annual inflation adjustments from the 2024 amounts.
2. Lower the private activity bond financing threshold from 50% to 25% for buildings placed in service in taxable years beginning after Dec. 31, 2023,
3. Repeal the qualified contract provision for requests submitted to LIHTC allocating agencies after Dec. 31, 2023, and reform purchase price to the fair market value, taking into consideration the non-low-income and low-income portions of the building, and
4. Replace the “first right of refusal” safe harbor with a purchase option safe harbor for agreements entered into, or amended, after the date of enactment.

Unlike the FY 2023 Greenbook LIHTC proposal, there is no proposal 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 requirement to site the properties in areas of opportunity.

In December 2022, Novogradac estimated that a similar set of LIHTC proposals (restoring the 12.5% increase in 9% allocations, further increasing the 9% allocations by 50% phased in over two years and lowering the private activity bond financing threshold to 25%) would finance an additional 1.93 million affordable rental homes over a decade.

NHTC Proposal (Cost: $15.564 billion over 2024-33)

For the first time, but as signaled in the administration’s Housing Supply Action Plan, the FY 2024 Greenbook includes a proposal to establish a NHTC to help finance affordable owner-occupied single family homes in distressed communities, as envisioned by the Neighborhood Homes Investment Act (NHIA, S. 657). The proposal would provide $6 per capita or $8 million for small states, which were the amounts as outlined in NHIA for the 117th Congress (H.R. 2143/S. 98). When NHIA was reintroduced this Congress, the amounts were increased to $7 per capita or $9 million for small states.

NMTC Proposal (Cost: $7.248 billion over 2024-33)

As in the FY 2022 and FY 2023 Greenbooks, 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 FY 2024 Greenbook (as with the FY 2022 and FY 2023 Greenbooks) 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 (S. 234) would allow. As the 2025 expiration date approaches, the cost of making the NMTC a permanent part of the tax code increases. The cost increased by $1.79 billion (33%) from the FY 2023 Greenbook estimate of $5.46 billion.

Next Steps for the Federal Budget

The next step in the budget and appropriations process would be for Congress to consider a FY 2024 budget resolution. Reportedly, House leadership is planning to bring up FY 2024 budget resolution in the next month or so, and it would serve not only as the response to the administration’s budget request as typical, but also as an opening bid on what budget priorities the House will push for in exchange for increasing the nation’s debt limit. Some House Republicans have suggested reducing FY 2024 discretionary spending to the FY 2022 level, which would entail a $120 billion cut to both defense and nondefense spending. Other Republicans have suggested reducing just nondefense spending to the FY 2019 level of $661 billion, which would mean a $180 billion cut just to nondefense spending.

It is not yet clear whether the Senate is also planning to consider a FY 2024 budget resolution. Senate Budget Committee Chair Sheldon Whitehouse, D-Rhode Island, has not publicly committed to doing so as of the writing of this post. Whether the Senate does or not, however, it is extremely unlikely that the House and Senate will agree on a single budget resolution, which is often the case during a divided Congress.

Meanwhile, Treasury continues to employ “extraordinary measures” to avoid breaching the $31.4 trillion debt limit, and Secretary Yellen wrote to Congress noting that Treasury will be able to continue to do so until early June. Independent experts suggest Treasury will be able to do until sometime between July and September. Some House Republicans have suggested a temporary suspension of the debt limit that allows Congress to put off finding a permanent solution to the debt limit until Sept. 30, when FY 2023 ends and would sets up a combined budget and debt limit fight.

Whatever happens on the debt limit, House and Senate leadership will need to approve allocations for defense and nondefense to facilitate drafting the 12 annual spending bills. However, it is not clear whether House and Senate leadership will be able to strike a deal before the traditional committee process begins in May/June, and likely not before the debt limit is resolved. It is more likely that the House and Senate will kick off the process assuming different overall discretionary spending amounts. Even if a long-term resolution to the debt limit is reached in July, there won’t likely be time to also agree on defense and nondefense spending amounts before Congress departs for the summer recess.

Given this political dynamic and the late start to the annual budget and appropriations process, Congress is not expected to enact all 12 of the FY 2024 spending bills before Oct. 1 when FY 2024 begins. Instead, Congress is likely to consider a continuing resolution after the recess to fund the government past Sept. 30 and likely through mid-November or early December. It is possible that Congress could add tax legislation to a final FY 2024 appropriations bill. House leadership have pledged not to consider an omnibus spending bill that includes all 12 annual spending bills but have not ruled out “minibuses” of several spending bills combined. Tax extenders legislation has a long history of being included in appropriations bills, and a “minibus” could serve as a legislative vehicle for tax legislation. Such a “minibus” could include community development tax proposals, such as extending the 12.5% increase in 9% LIHTC allocations, further increasing 9% LIHTC allocations, reducing the private activity bond financing threshold to 25%, enacting a NHTC, or making the NMTC permanent. Stay tuned.