Lame-Duck Session of Congress: Moving Parts, but Potential for Legislation

Published by Michael Novogradac on Friday, October 26, 2018 - 12:00am

Lame-duck sessions of Congress–the final weeks of a two-year term, those that follow an election–are a Rubik’s Cube of legislative periods. There are multiple moving pieces, each affecting others.

For affordable housing, community development and historic preservation advocates, the 2018 lame-duck session could be fertile ground for long-desired legislation. Or Congress could decide to work on the bare minimum before heading home for the holidays. It depends on moving pieces and how they each affect others.

The final weeks of a legislative session are the last chance for a Congress to pass bills and there are often important budgetary deadlines (such as this year’s Dec. 7 deadline for funding the parts of the government without full-year funding). With the election past (in this case, a midterm Congressional election), Democrats and Republicans sometimes work together to pass substantial legislation.

Then again, sometimes they don’t.

This year, per usual, multiple factors will determine whether significant issues are addressed. They include election results, legislative vehicles and Congressional priorities. Each affects the chances for lame-duck legislative achievements.

Election Results: Margin Matters

Whether legislation passes during the lame-duck session of Congress is reliant mostly on motivation. Among the perpetual issues are whether control of either chamber changes hands, the bitterness or joy of the election results, anticipation of what the next two-year Congress will bring, the departure of key leaders and more. In the most fertile lame-duck circumstances, legislators enter late November and early December ready to work together because the election results created or maintained the environment for such. In others, legislators punt major (and even minor) legislative activity to the next Congress.

Republicans have controlled both the House and Senate since 2015 and head to the Nov. 6 elections facing four potential outcomes (shown in order of likelihood among most prognosticators): Democrats take the House, Republicans control the Senate; Democrats take both the House and Senate; Republicans retain both the House and Senate; Republicans retain the House, Democrats take the Senate.

While control of the chambers plays a significant role–if, for instance, Democrats take both houses, they may elect to wait until January to pass important legislation–the margin may be more important. For instance, if the Democrats control the House by a large margin (for argument’s sake, we’ll define that as 10 or more seats), they may refuse to compromise with Republicans, knowing they take control of all the committees beginning Jan. 3. Similarly, a significant win for the Republicans might mean a lack of urgency for the same reason. Closer margins often mean more movement, due to the need for ongoing compromise.

The lame-duck session is also significantly impacted by the aftertaste of the Congressional elections. Bad blood between the parties–a common theme in recent years–could lead to less cooperation on legislation. The fact that most provisions of the Affordable Housing Credit Improvement Act haven’t passed and that an NMTC extension is still outstanding makes it a reasonable conclusion that only bipartisan cooperation could lead to a change. Cooperation is difficult in a hostile environment.

Both the results and the tenor of the elections will have an impact on whether major legislation can pass.

Legislative Vehicles

Here’s a fundamental truth about this year’s lame-duck lawmaking: any significant affordable housing, community development, historic preservation or renewable energy legislation that passes won’t be as a stand-alone bill. The best hope for such legislation as the New Markets Tax Credit Extension Act, the Rural Jobs Act, the Historic Tax Credit Enhancement/Improvement Acts or the Affordable Housing Credit Improvement Act lies with being attached to something else.

That means that the lame-duck legislative agenda will be driven by a few significant bills, but champions of a specific area push to include provisions of their bills with it.

The most obvious vehicle this year, the leading provision of the so-called “Tax Reform 2.0” legislation–making permanent the individual provisions of last year’s tax reform, which already passed the House–has virtually no chance of passage in the Senate no matter what happens in the election, so don’t expect that to be the vehicle. Two provisions–the retirement and education reform proposals–could pass (particularly the retirement proposal, which is similar to a bill championed by retiring Sen. Orrin Hatch, R-Utah, and might be seen as a nice gesture to a senator who is retiring after 42 years).

Better for attaching legislation would be a tax corrections bill to the tax reform legislation that passed last December. We’ve already seen the inclusion of a  four-year, 12.5 percent increase in low-income housing tax credit (LIHTC) allocations that were part of the fiscal year 2018 omnibus spending bill passed in March to help correct the so-called “grain glitch.” Sen. Maria Cantwell, D-Wash., and others were able to get that provision added to the bill in exchange for their support for a bill that Republicans needed to pass.

(An important aside: Republicans need 60 votes in the Senate to pass tax legislation, since they don’t have the opportunity to use budget reconciliation rules to pass the tax bills with a majority. That means that any tax-related bill in the lame-duck session will require at least nine Democrat votes in the Senate.)

Republicans want to correct several provisions in last year’s tax reform, most notably the “retail glitch” that mistakenly was drafted to force companies to write off the costs of certain property improvements over 39 years, rather than expensing as intended. It’s conceivable that Democrats will insist on something like a 4 percent LIHTC floor or a multiyear extension of the NMTC program in exchange for their votes.

A third legislative option is tax extenders, the traditional end-of-year vehicle in which legislators extend otherwise-expiring provisions. In 2014, the last midterm Congressional election, tax extenders included extensions of the 9 percent LIHTC floor, the NMTC and the renewable energy production tax credit. The following year, Congress made the 9 percent floor permanent, gave a five-year extensions of the NMTC and renewable energy tax credits in the PATH Act.  Every Congress at least addresses extenders and most recent Congresses have included them. That could happen this year and some of the provisions addressed in the next section could be included.

What Legislation?

While virtually anything could become law during a lame duck or any other session, there are three crucial pieces of affordable housing and community development legislation that could still succeed during the 2018 session.

The first is the approval of provisions of the Affordable Housing Credit Improvement Act. That bill has widespread support in both houses of Congress and is co-authored by the aforementioned Sen. Hatch, which could improve the chances of at least some provisions being attached to other legislation. The top priority among those in the affordable housing community is a 4 percent floor for the LIHTC and it doesn’t take a great imagination to envision that requirement being the price Republicans pay to pass some sort of tax corrections bill before the end of the year. There are other provisions of the Cantwell-Hatch bill that could be tacked on to legislation as well: the 50 percent basis boost for apartments serving extremely low-income households, increasing the amount of population covered by difficult development area (DDA) designations, and including relocation costs in qualified rehabilitation expenditures.

Another candidate for inclusion in lame-duck legislation is an extension of the NMTC. The NMTC is authorized through the 2019 round and the NMTC Extension Act has plenty of support in Congress, so an extension could be attached to tax-extenders bill this year. It’s possible that Republicans could even push for a two- or three-year extension of the NMTC if the Democrats take the House by a big margin.

The Historic Tax Credit Enhancement Act, which would repeal the historic tax credit basis adjustment, is bipartisan legislation introduced in June and could be a candidate to be attached to other legislation during the session. Again, it’s hard to know.

While the renewable energy production tax credit and investment tax credit are both in a phase-down stage, one incentive that could be considered in an extenders package is the Section 45L tax credit that offers $2,000 per energy-efficient unit. It expired at the end of 2017.

One other type of legislation that could also be a target during a lame-duck session is a tweak to the statute and regulations concerning the new opportunity zones (OZ) incentive. The Treasury Department recently issued its long-awaited first tranche of guidance for the OZ incentive, and there are areas where Treasury may believe they lack adequate statutory authority to provide the guidance many believe would reflect congressional intent.  It’s easy to envision a scenario where clarifying legislation is considered in the lame-duck session.

Lame-Duck Matters

Moving pieces are hard to predict and the likelihood of affordable housing, community development, historic preservation or renewable energy legislation passing during the lame duck session will be much clearer after Election Day.

What they would be is reasonably clear. How they would be done has more options. The effect of the midterm elections and mood after them is a wild card.

Nearly anything–including nothing–is possible.