Community Development and Renewable Energy Tax Incentives to Play a Vital Role in Ongoing Infrastructure Discussions

Published by Peter Lawrence on Wednesday, May 26, 2021 - 12:00am

Addressing the country’s infrastructure failings is again in the headlines. Recent Congressional hearings included housing, community development and renewable energy tax credits among the mechanisms that can be utilized to meet the Biden administration’s infrastructure investment goals. On May 18 the Senate Finance Committee hosted a hearing entitled, “Funding and Financing Options to Bolster American Infrastructure,” and the next day the House Ways and Means Committee hosted a hearing entitled, “Leveraging the Tax Code for Infrastructure Investment.” Both hearings provided the opportunity for Congressional members to discuss the Biden administration’s $2.25 trillion American Jobs Plan, an infrastructure proposal that that would address the country’s “traditional” transportation, energy and communications infrastructure provisions, while also investing in community development, climate change/green energy, and housing. Under the plan, as currently proposed, $213 billion would be invested to build, preserve or retrofit 2 million affordable homes.

The Senate Finance Committee hearing focused more closely on the country’s traditional infrastructure and transportation needs and how to fund improvements. Public private partnerships and bonds were also a topic of interest during the Senate Finance Committee hearing. The Ways and Means Committee hearing took a more expansive look at infrastructure and how the tax code could be utilized to achieve the administration’s goals. The low-income housing tax credit (LIHTC), new markets tax credit (NMTC), historic tax credit (HTC), and renewable energy production tax credit (PTC) and investment tax credit (ITC) and other green energy incentives were discussed during the Ways and Means Committee hearing. Chairman Richard Neal, D-Massachusetts, and other Congressional members voiced their support for these tax credits, as well as other means of supporting infrastructure investment, such as expanding the use of private activity bonds (PAB) for infrastructure and Build America Bonds (BAB), which were successfully deployed in response to the economic downturn caused by the Great Recession of 2008-2009.

As the Moving Forward Act, H.R. 2 did in the previous Congress, the Biden administration’s current infrastructure plan provides a more expansive view of infrastructure that includes under its umbrella community development and renewable energy and green initiatives–arguing that these incentives are interconnected with the roads, bridges and transportation needs traditionally considered infrastructure. Investment in improving the built environment includes all structures. Affordable housing and community development are just as crucial to the plan’s goals of job creation and improved competitiveness as roads and bridges, as these are all long-term assets that need to be maintained. A lack of affordable housing not only negatively affects households–access to services, good schools and jobs, and improved health outcomes have all been tied to access to safe and affordable housing–a lack of affordable housing also has negative consequences for the nation as a whole in the form of lost earnings, taxes and diminished job growth. A case can also be made for the inclusion of renewable energy generation, storage and transmission in infrastructure plans. President Biden’s plan would spur jobs by modernizing power generation and delivering clean electricity and efforts to improve the country’s power infrastructure would be paired with strong labor standards to ensure jobs created as a result are “good-quality.”

The witnesses who spoke before the Ways and Means Committee included Michael Novogradac, managing partner of Novogradac, whose written testimony detailed current tax credits and ways in which the tax code could be used to address the country’s infrastructure needs; recently reintroduced legislation such as the Neighborhood Homes Investment Act and Revitalizing Economies, Housing and Businesses (REHAB) Act of 2021; and soon to be reintroduced proposals like the middle-income housing tax credit. The remaining witnesses spoke on the importance of the community development and renewable energy tax credits and private public partnerships as means to fund infrastructure improvements. Dr. Khalil Shahyd, senior policy advisor for the National Resource Defense Council, spoke on the interconnected crises of the pandemic, racial inequity, climate change and infrastructure, to name a few. He also highlighted addressing the affordable housing crisis, noting the affects the housing shortage has on the U.S. economy and families.   Rachael Eubanks, treasurer for the state of Michigan, focused her testimony on the tax-exempt treatment of municipal bonds, specifically noting the importance of PABs and BABs.  Stephen R. Lewis, governor of Gila River Indian Community, spoke on the inequity of funding measures in Native American counties and actions that can be taken to address funding needs. Finally, Dr. Adrian Moore, vice president of policy for the Reason Foundation, focused his oral testimony on transportation, with public private partnerships being the best way to fund these and other infrastructure projects.

Some witnesses noted how the COVID-19 pandemic has laid bare the longstanding inequities – in terms of income, race and geography – that have caused many in this country to suffer. These issues must be considered when seeking out solutions to the nation’s infrastructure crisis. Ensuring how the needs of rural communities and underserved communities, such as Native American areas, as covered in Gov. Lewis’ testimony, are addressed was of particular concern to Congressional members. The hearing also raised the point that providing a voice to local community organizations is important to the success of community development incentives. Gov. Lewis and Novogradac spoke on how various tax incentives can be used to fund community development investments in low-income, minority and rural communities, both in their oral testimony and in response to members’ questions. They also described how even more can be done. Novogradac highlighted how the NMTC can be used to address the needs of rural and underserved areas while stressing the need for permeance when asked to comment by Rep. Terri Sewell, D-Alabama. Gov. Lewis recommended access to the NMTC be expanded, particularly through a dedicated set-aside of allocation authority for Native American community development entities. Furthermore, Gov. Lewis proposed Congress authorize NMTC allocations to infrastructure funds, at least in Indian country, to allow more tribal areas the ability to use this proven community development tool to fund their infrastructure projects. It should be noted that while only 0.4% of all NMTC allocations have gone to tribal community development entities, qualified low-income community investments in tribal lands have totaled 10 times that percentage according to the New Markets Tax Credit Coalition.

In his testimony,  Novogradac touched on the Affordable Housing Credit Improvement Act of 2021, and its various LIHTC and PAB enhancements and rural housing provisions. During the questions and answer segment of the hearing, both Reps. Jackie Walorski, R-Indiana, and Suzan DelBene, D-Washington, asked Novogradac to expound upon how the provisions of the AHCIA would strengthen the LIHTC. Rep. Walorski specifically asked for details on the rural basis boost provisions.  Rep. DelBene focused on how usage could be improved. Mr. Novogradac discussed how lowering the 50% threshold test to 25%, the 9% LIHTC allocation increase and the extremely low-income basis boost would make more project financing available.

Novogradac also elaborated on the importance of the HTC and the introduction of the Historic Tax Credit Growth (HTC-GO) Act of 2021 and the REHAB Act of 2021 in an exchange with Rep. Blumenauer, D-Oregon. Novogradac and Rep. Mike Thompson, D-California, discussed extending renewables tax incentives and the community benefits that could be generated, in the form of the creation of good paying jobs. Extending expiring tax credits, like the NMTC and Internal Revenue Code section 45L, the new energy-efficient home credit, not only has the intended benefit of driving investment but, as noted by Novogradac in response to a question from Chairman Neal, would bring certainty and stability to the market that taxpayers desire.  

The Ways and Means Committee and Senate Finance Committee hearings show a willingness by Congress to discuss infrastructure and seek a way forward. There is bipartisan agreement that something needs to be done–aside from crumbling roads and bridges, lack of affordable housing and inadequate access to broadband, the U.S.’ competitiveness is jeopardized by an infrastructure system that lags behind those of other developed countries. But unfortunately, there is currently little agreement on how to pay for infrastructure improvements, or even what constitutes “infrastructure.” President Biden has set an unofficial deadline of Memorial Day for significant advancement on bipartisan negotiation on infrastructure legislation, though talks have slowed in recent days. At the heart of the issue is Republicans refusal to consider the tax increases proposed by Biden to pay for his infrastructure spending. Since introducing his $2.25 trillion infrastructure plan in March, Biden has lowered the price tag of his proposal, cutting $550 billion from the bottom line in an attempt to more closely align his plan with that of Senate Republicans who recently offered to raise the price tag of their $568 billion infrastructure plan by another $50 billion. Some media reports suggest that Senate Republicans are willing to increase the size of their infrastructure plan to $1 trillion.

Should the administration’s plan fail to attract at least 10 Republican Senators needed to pass legislation in the Senate under “regular order,” Congressional leadership will likely turn to considering an infrastructure bill along partisan lines through the budget reconciliation process. A ruling by the Senate Parliamentarian that the existing fiscal year 2021 budget resolution could be amended for a second reconciliation has cleared the way for its use for an infrastructure package, but the reconciliation legislation would need to be passed by Sept. 30, which may be a challenging deadline to meet. Furthermore, it should be noted, employing the reconciliation process will be more difficult than when reconciliation was used earlier this year to pass the last COVID-19 relief package, giving the existing consensus among congressional Democrats on relief priorities.