The LIHTC and the Deficit Reduction Super Committee

Published by Michael Novogradac on Thursday, September 8, 2011 - 12:00am

The Joint Select Committee on Deficit Reduction, also known as the Super Committee, holds its first meeting today. The Committee is tasked with identifying and agreeing on $1.5 trillion in deficit reduction measures. At the time of this writing it’s considered unlikely that revenue measures will be part of the package. However, it is still possible that eliminating tax expenditure programs, such as the low-income housing tax credit, could be proposed as a means of raising revenue without raising taxes.

The group must vote on a plan by November 23 and is required to submit a report and legislative language to the president and Congress by December 2. Because of the fast-track nature of the Super Committee, it is imperative that the affordable housing community stand ready to quickly defend the low-income housing tax credit against calls for its elimination, particularly when they distort the program’s worth or misrepresent its performance.

For example, a recent Op-Ed in the Boston Globe prompted me to send the following as-yet-unpublished response:

“In your August 25, 2011 “Tax breaks shouldn’t be sacrosanct” opinion, Edward L. Glaeser, a professor of economics at Harvard University, suggests that eliminating the low-income housing tax credit should be an easy decision for the debt-reduction super committee. We strongly disagree with Mr. Glaeser’s contention that the low-income housing tax credit can be difficult to justify and therefore easily tossed aside.

Novogradac & Company recently undertook a study that compared the LIHTC program’s performance to government cash grants for developers. Among other things, the study found that LIHTC-financed properties faced fewer foreclosures than non-LIHTC apartment properties and the affordable rental housing stock supported by the tax credit was better maintained over the long term. Mr. Glaeser’s argument gives short shrift to the LIHTC program’s successful track record—a track record that can be attributed to the involvement of for-profit partners and the risk placed on investors instead of the federal government, the very aspects of the tax credit’s structure that he condemns.

Significantly absent from Mr. Glaeser’s opinion piece is the fact that investors receive their tax credits over 10 years, and those credits vest over 15 years. Unless the housing is suitable for occupancy, rented to low-income families at restricted rents, and remains in compliance with the LIHTC program during an initial 15-year term, the tax credits are not fully earned. This creates a significant incentive for private sector investors who have substantial skin in the game because if an LIHTC property falls out of compliance during those 15 years, investors suffer tax credit recapture.

We suggest that key to any analysis of tax expenditures is the need for it to recognize distinctions like these because many subsidies such as the low-income housing tax credit program are operating much more efficiently than a perfunctory evaluation may suggest.”

This year marks the 25th anniversary of the LIHTC, which has endured as the centerpiece of supply-side rental housing solutions since its inception and has become a proven job producer. While this milestone is cause for celebration, the affordable housing community must remain vigilant and protect the low-income housing tax credit in the months to come if we want to continue to add to the program’s successful track record.