How Bond Trends Affect Conversion Proposals’ Cost, Potential and Chances

Published by Peter Lawrence on Monday, October 17, 2016 - 12:00am

Because a number of states regularly fail to use and then subsequently abandon some of their private activity bond (PAB) volume cap, some members of the U.S. Congress are reportedly continuing to consider a variation on the administration’s fiscal year (FY) 2017 proposal to allow as much as 18 percent of a state’s unused PAB cap to be used instead for 9 percent low-income housing tax credit (LIHTC) allocations.

The table below illustrates how bond conversion proposals and bond use have changed over the years, as well as how bond use changes have affected the estimated cost of bond conversion proposals. The table compares the various versions of the administration’s bond conversion proposal from the FY 2013-2017 proposed budgets with the maximum PAB cap eligible to be converted into 9 percent LIHTC allocations, the resulting maximum nine percent LIHTC allocations, the Joint Committee on Taxation (JCT) revenue score for each version, and the calendar year amounts of PAB cap abandoned, as reported by the Council of Development Finance Agencies (CDFA).

 

Blog Chart Bond Conversion Proposals' Potential Cost and Effect
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Skeptics argue that as the economy recovers, the current upward trend in bond cap utilization will reduce the amount of carry-forward available for conversion, reducing the potential effectiveness of the bond cap conversion. They also argue that because the amount of carry-forward abandoned varies widely by state, the bond conversion proposal would not increase the amount of LIHTC in each state fairly or consistently. For example, New York, Washington and Utah consistently use their entire PAB cap, and thus don’t regularly have unused PAB cap that could be converted.

Advocates of the bond conversion proposal argue that the prevalence of abandoned PAB cap means that the proposal would be utilizing mostly, if not entirely, unused cap to address pressing affordable rental housing needs.