Bipartisan Group of Lawmakers Reintroduces Comprehensive Affordable Housing Legislation, Expanded with Six Significant New Provisions

Published by Dirk Wallace, Michael Novogradac, Peter Lawrence on Tuesday, June 4, 2019 - 12:00am

Today, Sens. Maria Cantwell, D-Wash.; Johnny Isakson, R-Ga.; Ron Wyden, D-Ore.; and Todd Young, R-Ind. introduced S. 1703 the Affordable Housing Credit Improvement Act of 2019 (AHCIA). This comprehensive low-income housing tax credit (LIHTC) legislation builds on a similar bill introduced in 2017 during the last Congress, S. 548.  Reps. Suzan DelBene, D-Wash.; Kenny Marchant, R-Texas; Don Beyer, D-Va.; and Jackie Walorski, R-Ind. have also introduced identical companion legislation in the House.

Principal Provisions

The reintroduced legislation contains two of the key provisions in S. 548:

  • A 50 percent increase in per-capita and small state minimum allocations, phased in over five years and assumes the temporary 12.5 percent allocation increase from the fiscal year 2018 omnibus appropriations law is made permanent (section 101 of S. 1703),
  • A permanent minimum 4 percent rate for LIHTCs used to finance the acquisition of property or generated by tax-exempt private activity bonds (section 301).

Novogradac has analyzed these two provisions and will provide estimates of their production impact in subsequent posts.H.R. 1661 did not contain the 50 percent allocation increase, but DelBene had introduced H.R. 4185, stand-alone legislation that was identical to the allocation increase provision in S. 548.

Six New Provisions

In addition to these high-profile provisions, AHCIA has six new provisions not previously included in S. 548 or H.R. 1661.The six new provisions would:

  • Provide a 30 percent basis boost for rural areas by allowing properties located in nonmetropolitan counties and areas as defined by section 520 of the Housing Act of 1949, which delineates communities eligible for U.S. Department of Agriculture’s Rural Development programs, to be designated as difficult development areas (DDAs), enabling those properties to receive a 30 percent basis boost and increase their financial feasibility (section 501),
  • Expand tax-exempt multifamily bond recycling by allowing states to recycle multifamily bond proceeds to finance homeownership, another eligible private activity bond activity, thereby allowing more “new” bond cap to be devoted to multifamily production eligible for 4 percent LIHTC (section 601),
  • Codify recent Internal Revenue Service (IRS) guidance to clarify general public use rule for tax-exempt multifamily bond-financed properties by adding specific language in LIHTC and private activity bond statutes to allow bond-financed housing for specific groups, such as veterans (section 207),
  • Streamline the average income test for bond-financed LIHTC development by adding a third minimum set-aside provision to the private activity bond statute (section 201),
  • Clarify protections for domestic violence victims in LIHTC properties by aligning the LIHTC statute with the Violence Against Women Act (section 206), and
  • Establish a development cost selection criterion in qualified allocation plans to codify practices in most states to consider cost reasonableness as part of their LIHTC allocation competitions (section 314).

Additional Provisions

The ACHIA contains another 20 provisions introduced previously that would provide more resources for affordable rental housing development; increase the financial feasibility of developments; or otherwise streamline and simplify the LIHTC.

More resources and greater financial feasibility

The AHCIA would:

  • Give states discretion to provide a 30 percent basis boost for tax-exempt bond-financed developments, allowing more of those developments to be financially feasible (section 310),
  • Increase population cap on DDAs from 20 to 30 percent of the nation’s population, enabling more properties to automatically receive a 30 percent basis boost and become more financially feasible (section 313),
  • Repeal the qualified census tract (QCT) population cap, enabling affordable rental properties in a greater number of areas to receive a 30 percent basis boost and become more financially feasible (section 306),
  • Include relocation expenses in eligible basis, consistent with the treatment of other indirect costs, in order to avoid adding unnecessary costs or sacrificing resident safety during rehabilitation, which would facilitate preservation of existing housing (section 305),
  • Eliminate basis reduction for LIHTC properties receiving energy efficiency and renewable energy tax incentives, enabling those properties to become more energy efficient and more easily access renewable energy (section 311),
  • Encourage the development of affordable rental housing in Native American communities by treating all qualifying Indian housing developments as located in DDAs, enabling those developments to receive a basis boost (section 402), and

Increase financial feasibility

The ACHIA would also:

  • Give states discretion to provide a 50 percent basis boost for apartments targeting extremely low-income renters, making more deeply income targeted developments more financially feasible (section 309),
  • Provide flexibility around existing tenant income eligibility to eliminate tension between allowing existing tenants to stay in their homes and recapitalizing LIHTC properties (section 203), and
  • Simplify the “10-year rule” and “related party rule” by replacing the general prohibition on acquiring properties placed in service in the past 10 years with a limitation the acquisition basis of properties and preventing related parties from acquiring properties in the past five years, thus supporting the preservation of properties in need of rehabilitation (section 304), and
  • Standardize rural income limit rules by conforming the income limit rule for tax-exempt bond-financed developments to that of allocated LIHTC to facilitate more rural LIHTC development (section 502).

Streamline, simplify, modernize or otherwise alter the LIHTC

In addition, the bill would:

  • Simplify the LIHTC student rule by aligning it more closely with the U.S. Department of Housing and Urban Development (HUD) student rule, which better achieves the intended targeting (section 204),
  • Clarify the ability to claim LIHTCs after casualty losses so LIHTC property owners have a reasonable amount of time to repair and reoccupy properties after damage, regardless of whether it results from a presidentially declared disaster (section 302),
  • Replace the right of first refusal (ROFR) with a purchase option to provide nonprofits, government agencies, tenants, and resident management corporations the ability to receive a greater share of the equity value of existing and future LIHTC properties (section 303),
  • Encourage the development of affordable rental housing in Native American communities by creating a selection criterion (but not a required preference) for Indian housing (section 401),
  • Modify the rent-setting rule for LIHTC properties using the average income option or 50 percent boost as provided in section 309 of the bill so that rents for apartments with tenant-based vouchers are set at no higher than the LIHTC rent (section 204),
  • Clarify the community revitalization plan, as included in one of the three LIHTC preferences, is determined by the relevant LIHTC allocating agency (section 307),
  • Direct the U.S. Treasury Department to issue regulations to prohibit local approval or contribution requirements, either as a threshold or through competitive points (section 308),
  • Ensure that affordability use restrictions endure illegitimate foreclosures by providing states rather than the Treasury Secretary the authority to determine whether foreclosures were merely to extinguish the use restriction (section 312), and
  • Change the official name of LIHTC to the Affordable Housing Tax Credit (section 701).

Outlook

Now that the AHCIA has been introduced, the affordable housing community will focus on getting as many of the sponsors of S. 548/H.R. 1661 in the last Congress who were reelected as possible to cosponsor the 2019 bill as well as secure new cosponsors.  H.R. 1661 had 182 bipartisan cosponsors, including a bipartisan group of 28 out of the then-40 members of the House Ways and Means Committee.  S. 548 had 45 bipartisan cosponsors, including a bipartisan group of 17 out of the 26 members of the Senate Finance Committee.

Like most tax legislation, the AHCIA is not likely to be considered by the tax-writing committees on its own. More likely, the bill (or provisions from it) will be added to an appropriate piece of tax legislation when such legislation begins to advance through Congress. Possible tax legislative “vehicles” include debt limit legislation, budget/spending cap deal, infrastructure investment, tax extenders, or tax “correction” legislation.  The timing for such vehicles is unclear, but Congress will need to address the debt limit when the Treasury can no longer employ “extraordinary measures” to avoid breaching the limit.  According to the latest projections from the Congressional Budget Office and Bipartisan Policy Center, Treasury is expected to exhaust its options in September or October.  Congress is also likely to need to address the statutory discretionary spending caps before enacting long-term fiscal year (FY) 2020 appropriations legislation.  FY 2020 begins Oct. 1.

Whatever the timing, it will be important to advance this legislation in 2019 rather than 2020, because it is generally more difficult to pass significant legislation in presidential election years; this is especially likely in the coming election because many candidates are current members of Congress. The time to reach out to Congress is now; don’t wait.