Key Housing, Community Development and Energy Provisions in the Proposed FY 2017 Budget

Published by Peter Lawrence on Wednesday, February 10, 2016 - 12:00am

The Obama administration released its $4.2 trillion fiscal year (FY) 2017 budget request Feb. 9, the last budget submission of Obama’s presidency. The budget requests $1.1 trillion in FY 2017 discretionary spending, a 0.8 percent increase from FY 2016, but also proposes a number of mandatory spending programs and about $3 trillion over 10 years in revenue increases to provide for more spending within budget caps on variety of initiatives addressing administration priorities, such as expanded earned income tax credits, more spending on clean energy and infrastructure, cancer research and funding for drug addiction, among others.

A summary of how several key housing, community development and renewable energy programs fare in the FY 2017 budget request follows.

U.S. Department of Housing and Urban Development

The FY 2017 request includes $48.9 billion of gross appropriated funding for the Department of Housing and Urban Development (HUD). This is about $6.3 billion or 14.8 percent more than the amount appropriated under FY 2016 funding levels. As in previous years, the FY 2016 request depends on significant projected Federal Housing Administration (FHA) and Ginnie Mae receipts that offset the cost of the HUD program budget, which the Congressional Budget Office has rejected in the past.

Public and Assisted Rental Housing

Project-Based Rental Assistance (PBRA)

The budget requests $10.8 billion for Project-Based Rental Assistance, which is $196 million or 1.8 percent more than the FY 2017 funding level of $10.6 billion. This funding level should be sufficient to renew all contracts. HUD also would need to conduct procurement for contact administrators, but any budget adjustments resulted from this procurement likely would take effect in the FY 2018 budget request.

Tenant-Based Rental Assistance (TBRA)

Tenant-Based Rental Assistance is proposed to be funded at $20.9 billion. Of that amount, $18.5 billion is for Section 8 Housing Choice Voucher contract renewals, which is a 4.3 percent increase over FY 2016. It appears this level of funding would be sufficient to renew vouchers in use. The budget also proposes $88 million for 10,000 new vouchers for homeless families with children, to be awarded based on need. This funding is intended to complement a new Obama administration family homelessness program initiative described below. For the HUD-Veteran Affairs Supportive Housing (HUD-VASH) program, the budget proposes only $7 million to focus on Native American veterans, instead of the $60 million provided in FY 2016 serving all veterans. HUD also proposes $110 million for Tenant Protection Vouchers, a $20 million decrease from the FY 2016 enacted level.

Public Housing Capital and Operating Funds

Funding for the Public Housing Capital and Operating funds would not change much under the request: the proposal provides $1.87 billion for the Public Housing Capital Fund and $4.57 billion for the Public Housing Operating Fund, representing a 1.8 percent cut and 1.5 percent increase over FY 2016 levels, respectively.

Rental Assistance Demonstration

The FY 2015 CR-Omnibus bill increased the cap on the Rental Assistance Demonstration (RAD) program from 60,000 to 185,000 public housing units, enabling all pending applications as of December 2014 to go forward as well as a few others, and the administration later proposed to repeal the unit cap last year in the FY 2016 request. The administration is proposing once again to remove the unit cap in the FY 2017 budget and requests $10 million for incremental funding to enable RAD conversions where such incremental funding is needed for financial feasibility, especially Section 202 housing for the elderly. The administration estimates that this incremental funding will support the conversion of 25,000 rental housing units through RAD.

Moving To Work

The request proposes to rescind the language authorized in the FY 2016 omnibus spending bill enacted last December which significantly expanded the Moving To Work (MTW) public housing demonstration program. The legislation directs HUD to admit 100 new public housing agencies to the MTW program over the next seven years, which is a significant increase over the current 39 participating agencies. In previous budget requests, the administration proposed a more modest expansion of MTW to only 15 new agencies. The FY 2016 omnibus bill also directed HUD to extend all of the existing MTW contracts without changes unless mutually agreed to by the public housing agency and HUD.

Community Planning and Development (CPD) Programs

The Community Development Block Grant (CDBG) program is proposed to be funded at $2.8 billion, representing a $200 million or 6.7 percent decrease from FY 2016 ($3 billion) enacted level. The HOME Investment Partnerships (HOME) program is proposed to be funded at $950 million, with $10 million set-aside from this amount for the Self-Help Homeownership Opportunities Program (SHOP), level with FY 2016.HOME program funding would remain 41 percent below nominal FY 2011 levels ($1.61 billion).

Homeless and Supportive Housing Programs

McKinney-Vento Homeless Assistance Grants are proposed to be funded at $2.66 billion, a $414 million or 18.4 percent increase over FY 2016 funding. This amount includes a $2.39 billion set aside for the continuum of care and rural housing stability assistance programs, and $270 million for Emergency Solutions Grants. The administration estimates that this request supports 25,500 new units of permanent supportive housing to end chronic homeless and 8,000 new units of rapid rehousing, and will complement the new administration initiative to address family homelessness described below.

The proposal provides $505 million for the Housing for the Elderly (Section 202) program, a 16.7 percent increase over FY 2016 levels. The Housing for Persons with Disabilities (Section 811) program is funded at $154 million, a 2.7 percent increase from FY 2016 funding levels. The budget would provide $335 million for the Housing Opportunities for Persons with AIDS (HOPWA) program to provide housing and supportive services to persons living with HIV and AIDS, which is level with the FY 2016 enacted funding level.

Obama Administration Initiatives

Opening Doors Initiative to End Family Homelessness

The budget proposes a new $11 billion mandatory spending program over 10 years to reach and maintain the goal of ending family homelessness by 2020, as outlined by its Opening Doors Initiative. This program would significantly expand the availability of rapid rehousing and Housing Choice Vouchers, serving an estimated 550,000 vulnerable families with children.

Housing Trust Fund

The administration is not proposing to provide a $1 billion mandatory appropriation for the Housing Trust Fund, as it has in the past. However, in December 2014, Federal Housing Finance Agency Director Mel Watt directed Fannie Mae and Freddie Mac to start setting aside contributions to the Housing Trust Fund through the course of 2015. On Jan. 30, 2015, HUD published interim program regulations, but funding is not expected to be allocated to states until mid-2016. Our latest estimate of the 2015 contributions as originally authorized by the Housing and Economic Recovery Act of 2008 is about $188 million. However, the FY 2017 budget estimates that $170 million will be allocated to the Housing Trust Fund in FY 2016 and $136 million in FY 2017.

Choice Neighborhoods Initiative

The Choice Neighborhoods Initiative, which is designed to comprehensively revitalize high-poverty public and assisted housing communities, is proposed to be funded at $200 million, which is 60 percent more than the FY 2016 enacted level.

Upward Mobility Project

The administration is once again proposing to create a new initiative, the Upward Mobility Project, which would allow up to 10 of the following:

  • communities;
  • states, or
  • consortia of states and/or communities

to blend four block grant programs (two from HUD and two from HHS):

  1. HUD: Community Development Block Grants
  2. HUD: HOME Investment Partnership Program Block Grants
  3. HHS: Community Services Block Grants
  4. HHS: Social Services Block Grants

This initiative is designed to let recipients experiment with their block grants to fund targeted and concerted economic development projects to reduce poverty and make families more self-sufficient. In exchange for this flexibility, recipients would agree to conduct research to measure outcomes. Furthermore, in addition to these funds, participating communities will be eligible to receive a total of $1.5 billion in new funding over five years, to combine with currently provided block grant resources.

Local Housing Policy Grants

The administration again proposes $300 million in mandatory spending to provide grants to local governments to create policies, programs or regulatory initiatives to promote a more elastic and diverse housing supply.

U.S. Department of the Treasury

Community Development Financial Institutions Fund

The administration proposes to fund the Community Development Financial Institutions (CDFI) Fund at $246 million, a 5.3 percent increase from FY 2016 funding levels. The administration also proposes to extend the CDFI Bond Guarantee program’s authorization by one year, through FY 2017, at $1 billion, a $250 million increase from FY 2016. The budget also estimates the Capital Magnet Fund will receive $98 million in FY 2016 and $80 million in FY 2017, compared with the $101 million in our latest estimate.

Tax proposals

Low-Income Housing Tax Credit

(Overall cost of all LIHTC proposals per the U.S. Office of Management and Budget or OMB: $9.59 billion over 10 years)

Private Activity Bond Conversion Proposal (OMB cost: $9.44 billion over 10 years)

  • Similar to FY 2016 proposal: This proposal would allow states to increase their LIHTC authority by converting some of their tax-exempt private activity bond (PAB) volume cap into LIHTC allocations.
  • States would be authorized, at their discretion, to convert up to 18 percent of their PAB cap to 9 percent LIHTC authority.
  • The maximum increase in LIHTC authority states would be allowed to convert under this proposal would be about 50 percent.
  • Conversion rate would be determined by $1,000 times twice the applicable percentage of the 30 percent present-value LIHTC in December of the previous year. For example, using the December 2015 rate of 3.21 percent, for every $1,000 of PAB cap, states could increase their LIHTC authority by $64.20.
  • This proposal came out of the administration’s desire to balance housing policy by promoting more rental opportunities; this change would allow states to issue more LIHTC at a lower cost than by increasing per-capita allocations.
  • Similar to FY 2016 proposal: Modifies 50 percent test to allow developers to use non-tax-exempt bond financing while still generating 4 percent LIHTC and forgo issuing tax-exempt bonds to finance developments (eliminates “bond cap burning”).

Income Averaging Proposal (OMB: no cost)

  • Similar to FY 2016 proposal: Creates third income election of reserving at least 40 percent of units at an average of 60 percent of area median income (AMI), with a maximum of 80 percent AMI on initial certification
  • Average is determined over the entire property, not a building-by-building basis.
  • The administration’s goal is to encourage income mixing, which will be especially helpful in:
  1. high housing cost areas, where rents of residents earning 60 to 80 percent AMI cross-subsidize rents of residents earning below 40 percent AMI,
  2. low-income neighborhood revitalization, and
  3. rural areas where very low incomes and sparse populations make it difficult to finance and maintain an appropriate income mix in properties.
  • Tenants in existing buildings whose income has risen over time more than 60 percent but no more than 80 percent AMI could be counted as less than 60 percent AMI for LIHTC income qualification purposes, which would assist the preservation of HUD and USDA-assisted housing.

Add Furthering Fair Housing Preference (OMB: no cost)

  • New proposal: States would be required to add a new fourth preference (as opposed to the 10 selection criteria) in their qualified allocation plans (QAP) to clarify their responsibilities to allocate LIHTC in a manner than affirmatively furthers fair housing.

Preservation Selection Criterion in QAPs (OMB: no cost)

  • Similar to FY 2016 proposal: States would be required to add a new 11th selection criterion in their qualified allocation plans (QAP) for preservation developments.

Remove the Qualified Census Tract Basis Boost Population Cap (OMB cost: $150 million over 10 years)

  • Similar to FY 2016 proposal: Under current law, a 130 percent basis boost is available for properties in qualified census tracts (QCT) designated by HUD with poverty rates at or above 25 percent or where tract median incomes are at or below 60 percent of the area median income.
  • This QCT designation, however, is subject to a cap if the aggregate population of the census tracts exceeds 20 percent of the metropolitan area population.
  • This proposal would remove the aggregate population cap, enabling properties in more areas—which are less poor than the areas designated under current law—within the metropolitan region to receive the 130 percent basis boost.

Providing Domestic Violence Protections in LIHTC Properties (OMB: no cost)

  • Similar to FY 2016 proposal: Extends rules under the Violence Against Women Act (VAWA) for most federal housing programs to LIHTC developments.
  • The proposal clarifies general public use rule to allow developers to create housing for domestic violence victims.

Community Development Tax Credits

New Markets Tax Credit

The administration proposes to make the new markets tax credit (NMTC) permanent at $5 billion annually, an increase from the $3.5 billion allocation currently in place through 2019. The proposal also would permit NMTC amounts resulting from qualified equity investment (QEIs) made after Dec. 31, 2019, to offset AMT liability. (OMB cost: $5.3 billion over 10 years)

Manufacturing Communities Tax Credit

The administration would create a new tax credit, the Manufacturing Communities Tax Credit (MCTC), at $2 billion annually for investments in communities suffering from major job loss events resulting from the loss of manufacturing facilities or base closures in each of the three years, 2017 through 2018. The MCTC could be structured like the NMTC.(OMB cost: $4.9 billion over 10 years)

Renewable Energy Tax Credits

(OMB combined cost for PTC and ITC proposals: $24.1 billion over 10 years)

Renewable Energy Production Tax Credit (PTC)

The administration would extend prior law for facilities on which construction begins before the end of 2016. For facilities on which construction begins after Dec. 31, 2016, the proposal would permanently extend the renewable electricity production tax credit (PTC) and make it refundable. The PTC would also be available to otherwise eligible renewable electricity consumed directly by the producer, rather than sold to an unrelated third party, to the extent that its production can be independently verified. Solar facilities that currently qualify for the investment tax credit (ITC) would be eligible for the PTC in lieu of the ITC through 2021. Solar facilities placed in service after 2021 would only be eligible for the PTC.

Renewable Energy Investment Tax Credit (ITC)

The administration proposes to make permanent the 30 percent credit for solar investments scheduled to expire after Dec. 31, 2021, and make permanent the temporary credits for qualifying geothermal heat pump property, small wind property, combined heat and power property fuel cells, and microturbines scheduled to expire after Dec. 31, 2016. It also proposes to make the election to claim the ITC in lieu of the PTC permanent.

Renewable Energy Manufacturing Tax Credit

The proposal would authorize an additional $2.5 billion of credits for investments in eligible property used in a qualifying advanced energy manufacturing project, such as energy equipment and facilities for clean energy manufacturing. The 30 percent advanced energy manufacturing tax credit was created under Section 48C by the American Recovery and Reinvestment Act. (OMB cost: $2.2 billion over 10 years)

Energy Efficient Commercial Building Property Deduction

The proposal would update the energy efficiency standard and would increase, modify, and permanently extend the deduction for energy efficient commercial building properties (Section 179D), which can be used to help finance energy-efficient upgrades of multifamily housing of four stories or more. Specifically, the proposal would provide an increase from the $1.80 per square foot available for improvements reducing lighting, heating, and cooling costs relative to the 2007 industry standard under current law to $3 per square foot if improvements reduce overall building energy costs by 50 percent below the 2010 industry energy-efficiency standard for certified improvements placed in service after Dec. 31, 2016. For improvements that are part of a certified plan to reduce energy use by one of the separate building systems by a proportion that would lead to at least 50 percent savings if applied to the building as a whole, the deduction would be $1.00 per square foot. For taxpayers that simultaneously satisfy the energy savings targets for both the building envelope and heating, cooling, ventilation, and hot water systems, the deduction would be $2.00. The energy-savings reference standards would be updated every three years.

Furthermore, the proposal would create a new deduction for the retrofitting of existing buildings with at least 10 years of occupancy that reduce heating and cooling costs relative to a specified energy use baseline. (OMB cost: $2.6 billion over 10 years)

New Energy Efficient Homes Tax Credit

The proposal modifies and extends the tax credit for new energy efficient homes of three stories or less (Section 45L). For homes acquired after Dec. 31, 2016, and no later than Dec. 31, 2026, the proposal would provide $1,000 per unit for meeting Energy Star certifications, as verified by a qualified third party. In addition, a $4,000 per unit tax credit for homes meeting the U.S. Department of Energy’s Zero Energy Ready Home guidelines, as verified by a qualified third party. (OMB cost: $2.8 billion over 10 years)