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Biden-Harris Administration’s $1.63 Trillion FY 2025 Budget Proposes $72.6 Billion in HUD Discretionary Spending, $325 Million for CDFI Fund, $36.6 Billion of LIHTC Proposals, $9 Billion for NMTC Permanence and $18.8 Billion to Establish the NHTC

Published by Peter Lawrence on Monday, March 18, 2024 - 1:36PM


The Biden-Harris administration March 11 released its $7.3 trillion fiscal year (FY) 2025 budget request. The proposal includes important provisions related to affordable housing and community development, including but not limited to enhancements for the low-income housing tax credit (LIHTC), a call for new markets tax credit (NMTC) permanence and creation of a neighborhood homes tax credit (NHTC).

Top Line Comparisons

Of the proposal’s $7.3 trillion total, $1.63 trillion would be base discretionary budget authority, about a $39 billion (2.5%) increase from FY 2024 (this assumes all of the final FY 2024 spending bills conform the FY 2024 spending cap agreed to by Congressional leadership, as only six of the 12 annual FY 2024 spending bills have been enacted as of the writing of this post), but a $100 billion (5.8%) decrease from its FY 2024 request. The FY 2025 request is mostly in line with the agreement struck in last year’s debt limit law, the Fiscal Responsibility Act (H.R. 3746), which set a limit of $711 billion for nondefense discretionary budget authority and $895 billion for defense discretionary budget authority in FY 2025.

The FY 2025 budget request incorporates not only annual discretionary spending and estimates of current law mandatory spending, but also mandatory spending proposals, which include $185 billion in housing and community development-related spending and tax proposals.

General Overview

According to the U.S. Office of Management and Budget, $895 billion would be provided for defense discretionary budget authority, a $9 billion (1.0%) increase from FY 2024, and $734 billion would be provided for nondefense discretionary budget authority, a $30 billion (4.2%) increase from FY 2024. The administration uses some creative accounting, including designating some spending as emergency spending, to recharacterize some of this increase to stay under the cap established by the debt limit law.

The FY 2025 nondefense discretionary budget includes a request of $72.6 billion for the U.S. Department of Housing and Urban Development (HUD), a $800 million (1.1%) decrease from FY 2024 gross appropriations of $73.4 billion enacted March 8, and $685 million (0.9%) less than the FY 2024 request. The nondefense discretionary spending cap made it difficult for the administration to propose an increase. Furthermore, the budget request includes $325 million for the U.S. Department of the Treasury’s Community Development Financial Institutions (CDFI) Fund, a $17 million (4.9%) decrease from the FY 2024 request (as mentioned above, the FY 2024 enacted level is not available as of the writing of this post).

Housing and Community Development Mandatory Spending Proposals

As partially previewed in this blog previously and in a March 7 White House Factsheet, in addition to the regular discretionary spending request, the FY 2025 budget request included $81.3 billion of one-time housing and community development mandatory spending requests proposed to be administered by HUD summarized below: 

  • $22.3 billion for Housing Vouchers for Vulnerable Low-Income Populations, new tenant-based rental assistance, $9.1 billion of which would fund new incremental vouchers for 20,000 youth that are estimated to age out of foster care annually and $13.2 billion of which would fund new vouchers in 2025 targeted to extremely low-income (ELI) veteran families that are currently without rental assistance;
  • $20 billion for an Innovation Fund for Housing Expansion, which will provide flexible grants to states, communities, tribes and other eligible entities to implement locally-driven plans to dramatically expand housing supply, lower rental costs, and promote homeownership;
  • $10 billion for First-Generation Homebuyer Down Payment Assistance to enable approximately 400,000 Americans to purchase new homes, while addressing racial and ethnic wealth gaps by creating generational wealth through homeownership;
  • $8 billion in additional Homelessness Grants for a new program inspired by California’s HomeKey program to rapidly expand temporary and permanent housing strategies and options for people experiencing or at risk of homelessness; 
  • $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 and climate resilient for the lowest income households;
  • $7.5 billion to modernize, substantially rehabilitate and preserve existing, distressed public housing; 
  • $3 billion for Sustainable Eviction Prevention Reform, for new or existing efforts to solidify long-term state, local, tribal and territorial efforts to reform eviction policies and programs to ensure renters’ access to resources that help them avoid eviction, and supports to prevent future housing instability; and
  • $3 billion for Emergency Rental Assistance for Older Adults at Risk of Homelessness, to help communities to provide targeted homelessness prevention assistance for very low-income older adults in unstable housing situations and support those currently experiencing homelessness.

 

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.

Blog Graphic: Key Programs of the U.S. Department of Housing and Urban Development Budget

Public and Assisted Rental Housing

Project-Based Rental Assistance 

The request provides $16.7 billion for discretionary PBRA funding, which is $676 million (4.2%) more than FY 2024 and $738 million (4.9%) more than the FY 2024 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 2025.

Tenant-Based Rental Assistance

Discretionary tenant-based rental assistance (TBRA) is proposed to be funded at $32.8 billion, a $369 million (1.1%) increase from FY 2024 and $53 million (0.2%) increase from the FY 2024 request. Of that amount, $29.3 billion is for Section 8 Housing Choice Voucher contract renewals, which is a $760 million (2.7%) increase from FY 2023, and $1.41 billion (5.1%) more than FY 2024 request. According to HUD, this amount should provide enough annual funding to renew vouchers when they expire over the course of FY 2025.

In addition to providing enough funding to renew all existing vouchers when they expire in FY 2024, the request would provide more than $241 million for 20,000 new incremental vouchers to serve additional households in need, especially in areas of opportunity. The proposal calls for prioritizing the additional rental assistance for those who are experiencing or at-risk of homelessness, and survivors of domestic violence, dating violence, sexual assault, stalking, or human trafficking.

The proposal also provides $300 million for Tenant Protection Vouchers, a $37 million (14.2%) decrease from FY 2024 and a $85 million (22.1%) decrease from the FY 2024 request. For the HUD-Veteran Affairs Supportive Housing (HUD-VASH) program, the request provides $5 million, which is $10 million (66.7%) less than FY 2024 and level with the FY 2022-24 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 $8.54 billion, a $271 million (3.1%) decrease from FY 2024 and $353 million (4.0%) less than the FY 2024 request. Of this amount, the request provides $3.2 billion in capital subsidies, equal to FY 2022-24 and the FY 2024 request. For operating subsidies, the budget proposes $5.05 billion, a $426 million (7.8%) decrease from FY 2024, and $83 million (1.6%) less than the FY 2024 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, which was extended by the FY 2024 HUD appropriations law to Sept. 30, 2029 (the budget was drafted prior to enactment of FY 2024 HUD appropriations). Congress could choose to increase the cap in its FY 2025 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 Section 811 Housing for People with Disabilities properties.

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 $140 million, a $65 million (86.7%) increase from FY 2024 and a $45 million (24.3%) decrease from the FY 2024 request.

Community Planning and Development Programs

The Community Development Block Grant (CDBG) account is proposed to be funded at $2.93 billion, a $3.79 billion (56.4%) decrease from FY 2024 and $485 million (14.2%) decrease from the FY 2024 request. However, after accounting for nearly $3.3 billion in FY 2024 economic development initiatives, better known as congressional “earmarks,” the administration proposes a $400 million (12.1%) funding cut to CDBG formula grants as compared to FY 2024. The administration proposes to continue the PRO Housing program, a YIMBY incentive grant program originally established in the FY 2023 omnibus appropriations law to incentivize state and local governments to reduce regulatory barriers to affordable housing at $100 million, level with FY 2024 and a $15 million (17.6%) increase from the FY 2024 request.

The administration proposes $1.25 billion for the HOME Investment Partnerships Program (HOME), equal to FY 2024, but $550 million (30.6%) less than the FY 2024 request. HOME continues to be vulnerable because it represents funding for future housing as opposed to maintaining funding to keep currently assisted households in their housing.

Homeless and Supportive Housing Programs

McKinney-Vento Homeless Assistance Grants are proposed to be funded at $4.06 billion, $9 million (0.2%) more than FY 2024, and $311 million (8.3%) more than the FY 2024 request. This amount includes a $3.7 billion set-aside for the continuum of care and rural housing stability assistance programs, an increase of $160 million (4.5%) from FY 2024 and $300 million (8.8%) from FY 2024 request, as well as $290 million for Emergency Solutions Grants, the same as FY 2022-24.

The budget provides $931 million for the Housing for the Elderly (Section 202) program, a $18 million (2.0%) increase from FY 2024, but a $92 million (9.0%) cut from the FY 2024 request. Unlike in FY 2022 or FY 2023, the request includes no funding for new capital advances or new project-based rental assistance contracts.

The Housing for Persons with Disabilities (Section 811) program is proposed to be funded at $257 million, a $49 million (23.6%) increase from FY 2024, but $99 million (27.8%) less than the FY 2024 request. Like the Section 202 program request, the request includes no funding for new capital advances or new project-based rental assistance contracts.

The budget would provide $505 million for the Housing Opportunities for Persons with AIDS (HOPWA) program to provide housing and supportive services, equal to FY 2024 and the FY 2024 request.

U.S. Treasury’s CDFI Fund

The FY 2025 budget proposes to increase the CDFI Fund to $325 million, a $17 million (4.9%) increase from the FY 2024 request (a comparison with FY 2024 is not possible because the FY 2024 Financial Services spending bill, which provides funding to the CDFI Fund, was not enacted as of the writing of this post). Of this amount, $210 million would be for the financial/technical assistance awards, a $9 million (4.4%) increase from FY 2024 request. Furthermore, the budget continues to propose the CDFI Bond Guarantee program at a $500 million authorization level as authorized for FY 2024 and the FY 2024 request, but as in the FY 2024 the budget proposes $10 million to subsidize the bond guarantees, which would enable greater eligibility for CDFIs to participate.

Treasury “Greenbook” of FY 2025 Tax Proposals

In addition to the LIHTC, NHTC and NMTC proposals described below, Treasury’s “Greenbook” of FY 2025 tax proposals includes to increase tax revenue by:

  • Increasing the corporate income tax rate to 28% (raises $1.35 trillion over 2025-2034),
  • 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 (raises $797 billion over 2025-2034),
  • Establish a 25% minimum tax on total income, generally inclusive of unrealized capital gains for all taxpayers with wealth (the difference obtained by subtracting liabilities from assets) of greater than $100 million (raises $503 billion over 2025-2034),
  • A proposal to reform international tax system to increase tax rate on U.S. multinationals’ foreign earnings from 10.5% to 21% (raises $374 billion over 2025-2034),
  • 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, which would be 40.8% including the NIIT (raises $289 billion over 2025-2034), 
  • Increase the top individual income tax bracket for individuals earning more than $400,000 and joint filers with $450,000 in income to 39.6% (raises $246 billion over 2025-2034),
  • Increase excise tax on the repurchase of corporate stock buybacks from 1% to 4% (raises $166 billion over 2025-2034),
  • Adopt the undertaxed profits rule from the global minimum tax pillar 2 rules (raises $136 billion over 2025-2034),
  • Eliminate various fossil fuel incentives (raises $35.3 billion over 2025-2034),
  • Repeal deferral of gain from section 1031 like-kind exchanges (raises $19.7 billion over 2025-2034)
  • Tax carried interest as ordinary income (raises $6.6 billion over 2025-2034),

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 community development tax incentive proposals, which as such have a better chance of enactment. As previewed in the blog earlier, the proposals are:

LIHTC Proposals (Cost: $36.646 billion over 2025-2034)

1. Increase 9% LIHTC allocations to:
a. $4.37 per capita and $4,901,620 for small states in 2024,
b. $4.99 per capita and $5,632,880 for small states in 2025, and
c. Adjust the 2025 amounts for inflation for 2026 and subsequent years.
Note: These amounts slightly higher than proposed in the FY 2024 Greenbook but lower than what was proposed in the Affordable Housing Credit Improvement Act (AHCIA, H.R. 3238, S. 1557)

2. Lower the private activity bond financing threshold from 50% to 25% for buildings placed in service in taxable years beginning after Dec. 31, 2024,

3. Repeal the qualified contract provision for requests submitted to LIHTC allocating agencies after Dec. 31, 2024, 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.

NHTC Proposal (Cost: $18.845 billion over 2025-2034)

As signaled in the administration’s Housing Supply Action Plan and included in the FY 2024 Greenbook, FY 2025 Greenbook proposes to establish a NHTC to finance affordable owner-occupied single family homes in distressed communities, as envisioned by the Neighborhood Homes Investment Act (NHIA, S. 657, H.R. 3940). 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 Permanence (Cost: $9.118 billion over 2024-2033)

As in the FY 2022, FY 2023, and FY 2024 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 2025 Greenbook (as with the FY 2022 and FY 2023, FY 2024 Greenbook) 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, H.R 2539) 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 $1.84 billion (25.8%) from the FY 2024 Greenbook estimate of $7.25 billion and $3.66 billion (67%) 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. On March 7, the House Budget Committee advanced a FY 2025 budget resolution on party lines, but it is unclear whether Speaker Johnson will attempt pass the budget on the House floor. 

It is also not yet clear whether the Senate is also planning to consider a FY 2025 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, especially during a presidential election year.

Whatever happens to the budget resolution, House and Senate leadership will need to approve allocations for defense and nondefense spending 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. It is more likely that the House and Senate will kick off the process assuming different overall discretionary spending amounts, if the process starts at all. There won’t likely be time to also agree on defense and nondefense spending amounts before Congress departs for the summer recess.

Considering 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 2025 spending bills before Oct. 1 when FY 2025 begins. Instead, Congress is likely to consider a continuing resolution after the recess to fund the government past Sept. 30 and likely after the election, either through mid-November or early December. If Congress hasn’t enacted the tax legislation currently pending in the Senate, the Tax Relief for American Workers and Families Act, H.R. 7024, it is theoretically possible that Congress could add tax legislation to a final FY 2025 appropriations bill considered in the lame duck. 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, like the FY 2024 spending bills were enacted in two “minibuses.”

However, given the 2025 expirations of many individual tax provisions in the Tax Cuts and Jobs Act, the tax reform legislation enacted in 2017, and others (such as the NMTC), it is more likely that Congress would wait until 2025 to consider tax legislation. Indeed, it is also quite possible that final FY 2025 spending bills would be considered in 2025, depending on the outcome of the election. If the election results in a change of party control of the House, Senate, or White House, it is not unusual for Congress to pass a further continuing resolution to the following year to enable the party gaining the majority to change spending bills more toward their priorities.

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