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Revised $1.75 Trillion Build Back Better Reconciliation Legislation Includes $325 Billion in Green Tax Incentives, more than $156 Billion in Housing and Community Development Spending, and more than $18 Billion in LIHTC, NHTC proposals

Published by Peter Lawrence on Tuesday, November 9, 2021 - 12:00AM

The House Rules Committee released Nov. 3 a revised draft of the $1.75 trillion Build Back Better (BBB) reconciliation legislation, which if enacted, would represent the largest expansion of affordable housing and community development spending, as well as affordable housing and green energy tax incentives in a single piece of legislation ever.

The Nov. 3 revised draft  was reduced from the original version as reported by the House Budget Committee Sept. 25, which included the portions of the bill House Ways and Means and Financial Services Committee providing historic investments in affordable housing and green energy.

Unlike President Biden’s Build Back Better Framework and accompanying bill text released Oct. 28, the latest Nov. 3 version added back low-income housing tax credit (LIHTC) and neighborhood homes tax credit (NHTC) proposals, the tribal new markets tax credit (NMTC) allocation, and expanded green energy tax incentive proposals.

See also the accompanying section-by-section summary and Joint Committee on Taxation cost estimates of this latest version of the bill. After passing the rules for floor consideration Nov. 5, the House is scheduled to consider this reconciliation legislation the week of Nov. 15.

Below are highlights of the housing, community development and green tax incentives.

LIHTC Provisions (overall score: $11.716 billion over 2022-31, reduced from $29.361 billion in Sept.)

Similar proposals originally included in AHCIA (H.R. 2573/S. 1136) and the Decent, Affordable, Safe Housing for All (DASH) Act: (score: $12.726 billion over 2022-31, reduced from $30.578 billion in Sept.)

  • Would increase annual LIHTC allocations (score: $2.083 billion over 2022-31, reduced from $11.048 billion in Sept.) by 10% plus annual inflation adjustments in 2022-24. These allocation increases would be based on the 2021 population-based amounts ($2.81 per capita and $3,245,625 small state minimum), which represents the last year of the temporary 12.5% increase originally enacted in the fiscal year 2018 appropriations law and scheduled to expire at the end of this year. After 2024, the allocation increase in the reconciliation bill would expire, and the 2025 amounts would be based on 2017 amounts as adjusted by inflation from 2017-24. As specified in the bill, the annual allocation amounts would be:
    • $3.14 per capita and $3,629,096 small state minimum in 2022,
    • $3.54 per capita and $4,081,825 small state minimum in 2023,
    • $3.97 per capita and $4,528,053 small state minimum in 2024,
    • $2.65 per capita and $3,120,000  small state minimum in 2025, and
    • Annual inflation adjustments based off the 2025 amounts thereafter; (section 135101 of reconciliation bill);

Blog Graphic: 9% LIHTC Allocations

Click to Enlarge

 

The Senate may make changes to this proposal to extend the 9% allocation increases through 2025 to line it up the expiration of many other temporary tax policies (including the NHTC detailed below), and possibly to make the 12.5% allocation increase originally enacted in 2018 permanent and a part of the baseline.

  • Would temporarily reduce the tax-exempt private activity bonds (PABs) financed by threshold from 50% to 25% (score: $8.617 billion over 2022-31, reduced from $9.498 billion in Sept.) for buildings financed by obligations issued in calendar years (CY) 2022-26, but not obligations issued in CYs before 2022 or after 2026, (section 135102 of reconciliation bill);
    In a March update of a report commissioned by the National Council of State Housing Agencies, Novogradac estimated that up to 1.5 million additional affordable rental homes could be financed over 2022-31 if the PAB financing threshold were lowered to 25% on an indefinite basis.
  • Would provide a permanent maximum 50% basis boost for units serving extremely low-income tenants (score: $2.025 billion over 2022-31, reduced from $2.603 billion in Sept.) as long as at least 20% of the units in the building was reserved for households earning no more than 30% of the area median gross income or the federal poverty line, whichever is greater, coupled with at least an 8% set-aside of state 9% allocations to be used specifically for these buildings. The 50% basis boost option for 9% LIHTC properties would be limited to no more 13% of the state ceiling and for properties financed by PABs with 4% LIHTC, no more than 8% of a state’s annual PAB cap. This provision would be effective for LIHTC allocations after Dec. 31, 2021, and buildings financed by PAB obligations issued after Dec. 31, 2021 (section 135103 of reconciliation bill);
  • A permanent maximum 30% basis boost for properties in Native American areas (score: $117 million over 2022-31, increased from $114 million in Sept.) as defined as buildings that were assisted or financed under the Native American Housing Assistance and Self Determination Act of 1996, or, the project sponsor is a qualifying Indian tribe. This provision would be effective for buildings placed in service after Dec. 31, 2021 (section 135303 of reconciliation bill); and
  • Would allow section 48 renewable energy investment tax credit not to reduce LIHTC basis, which would facilitate the financing of solar panel on LIHTC properties. This provision would be effective for facilities placed into service after Dec. 31, 2021 (section 136102(i) in the reconciliation bill).

Novogradac is in the process of updating its unit-financing, job and economic impact estimates of these LIHTC proposals on affordable rental housing production and preservation, and will detail them in a subsequent Notes from Novogradac blog post.

Other LIHTC provisions (combined score: raises a total of $1.01 billion over 2022-31, reduced from $1.217 billion in Sept.):

  • Would limit the use of qualified contracts (score: raises $457 million over 2022-31, reduced from $466 million) by repealing the option for future allocations or allocations determined after Jan. 1, 2022, and changing the formula that determines the qualified contact purchase price on existing properties to fair market value, taking into consideration the rent restriction on the qualified low-income portion of the property, effective for qualified contract requests made to the allocating agency after date of enactment (section 135104 of reconciliation bill); and
  • Would modify the existing statutory right of first refusal (ROFR) and clarify of rights relating to building purchase (score: raises $553 million over 2022-31, reduced from $751 million in Sept.) by changing the ROFR safe harbor into a purchase option safe harbor. For existing agreements, the provision would clarify, for purposes of the safe harbor, that the right to acquire the building includes the right to acquire all of the partnership interests relating to the building. It would also clarify that the right to acquire the building includes the right to acquire assets held for the development, operation or maintenance of the building. For existing agreements, the provision would also clarify that the ROFR safe harbor may be satisfied by the grant of a purchase option. A ROFR may be exercised in response to an offer by a related party; a bona fide third-party offer is not needed. A ROFR may be exercised without the approval of any owner of a credit project. Finally, the provision would amend the minimum purchase price to exclude exit taxes. For new properties, the purchase option provision would be effective for agreements entered into or amended after date of enactment, and for existing properties, it would be effective retroactively (section 135506 of reconciliation bill).

NHTC (score: $5.859 billion over 2022-31, reduced from $17.736 billion in Sept.)

The reconciliation bill would create a NHTC very similar to the tax credit proposed in the Neighborhood Homes Investment Act (H.R. 2413, S.98), and the DASH Act, but allocations are reduced and the NHTC would expire after 2025. The proposed NHTC is estimated to finance the construction or rehabilitation of about 125,000 owner-occupied homes in distressed neighborhoods. Please see this post for an overview of the NHTC as originally envisioned.

The allocations in 2022 would be reduced from $6 per capita and a $8 million small state minimum as originally drafted to $3 per-capita and a $4 million small state minimum. These amounts would be adjusted annually for inflation in 2023-24. In 2025, the original $6 per capita and a $8 million small state minimum would be adjusted for inflation from 2022-24. After 2025, the NHTC would expire.

Blog Graphic: Projected NHTC Allocation from 2022 to 2025

Click to Enlarge

 

NMTC Provision (overall score: $178 million over 2022-31, reduced from $2.671 billion in Sept.)

Would create a $175 million separate pool of NMTC authority in calendar years 2022-25 for low-income community investments in tribal statistical areas, for tribal areas and for projects that serve or employ tribe members (section 135302 in reconciliation bill).

The proposals originating in the New Markets Tax Credit Extension Act (H.R. 1321, S. 456) to make the NMTC permanent, adjust annual allocation authority by inflation, or provide alternative minimum tax (AMT) relief were not included. Nor was the $3 billion in temporary stimulus allocation authority for 2022-23 or the $100 million separate pool NMTC authority for low-income community investments in the U.S. territories were included in the Nov. 3 BBB draft. The Senate may add some of these NMTC proposals if the legislation passes the House.

Historic Tax Credit (HTC) Provisions (none, reduced from $26.476 billion over 2022-31 in Sept.)

None of the proposals originally included in the Historic Tax Credit Growth and Opportunity Act (HTC-GO, H.R. 2294/S. 2266) or the Rehabilitation of Historic Schools Act (H.R. 4086) were not included in the Nov. 3 BBB draft. The Senate may add some of these HTC proposals if the legislation passes the House.

Renewable, Clean Energy and Energy Efficiency Tax Incentive Proposals (overall score of the subtitle: $325.281 billion over 2022-31, increased from $273.456 billion in Sept.)

The overall framework of the set of renewable, clean energy, and energy efficiency tax incentive proposals as included in the Sept. version was largely retained, although the Nov. 3 BBB draft made various changes throughout and the overall cost of the proposals increased by nearly $52 billion over 2022-31. The increase was largely the result of removing the proposed $150 billion in spending for the Clean Energy Payment Program (CEPP) from the Sept. version of the Energy and Committee portion of the BBB reconciliation bill, which prompted congressional leadership to replace a portion of the lost resources devoted to CEPP to enhancing various green energy tax incentive proposals in the Nov. 3 BBB draft.

The two main green tax bills that served as inspiration for this subtitle—the House’s Growing Renewable Energy and Efficiency Now Act (GREEN Act, H.R. 848) and the Senate’s Clean Energy for American Act (CEAA, S. 1298)—are now reflected in the Nov. 3 BBB draft. In essence, the GREEN Act architecture of the green energy tax proposals where existing technology incentives are largely extended and enhanced to guide the first five years and serve as a transition to the framework envisioned in CEAA, which would provide technology neutral production, investment, and energy efficiency tax incentives.

The specifics of the green energy tax subtitle, including changes from the Sept. version of the BBB bill will be examined in a future post.

Housing and Community Development Spending (overall amount: more than $156 billion, reduced from $327 billion in Sept.)

The Nov. 3 BBB bill retains the various housing and community development spending proposals included in the House Financial Services Committee portion of the bill, but reduces the amount available from the $327 billion proposed in Sept. to more than $156 billion.  See summary below.

  • $65 billion to preserve public housing;
    • Of this amount, $2.25 billion would be for comprehensive investments in public housing and surrounding neighborhoods via Choice Neighborhoods Initiative,
  • $24 billion for Housing Choice Vouchers (tenant-based rental assistance);
    • Of this amount, $7.2 billion is provided for individuals and families experiencing or at risk of homelessness, and survivors of domestic violence, dating violence, sexual assault, stalking and human trafficking,
    • $300 million is provided for competitive grants for mobility related services, and
    • $230 million is provided for landlord incentives to participate in the program;
  • $15 billion for the Housing Trust Fund (for state allocation estimates, see NLIHC link);
  • $10 billion for the HOME Investment Partnership Program;
  • $10 billion for a new HUD-administered program for first-generation downpayment assistance and housing counseling;
  • $5 billion for lead hazard remediation and healthy housing funding;
  • $5 billion for to subsidize 20-year mortgages for first-generation homebuyers as outlined in the Low-Income First Time (LIFT) Homebuyer Act (S. 2797);
  • $3 billion for Community Development Block Grants;
    • Of this amount, $700 million to address the housing and community infrastructure needs of Colonias along the U.S.-Mexico border, and
    • $500 million for to address the housing and community infrastructure needs resident-owned manufactured housing communities;
  • $3 billion for a new HUD-administered Community Restoration and Revitalization Fund;
    • Of this amount, $500 million is for community land trusts and shared equity Homeownership programs;
  • $2.1 billion for U.S. Department of Agriculture rural housing programs;
    • Of this amount, $2 billion to carry out new construction, make improvements to energy and water efficiency or climate resilience, to remove health and safety hazards, and to preserve housing under the Section 515 Rural Rental Housing and Section 514/516 Farm Labor Housing programs, as well as providing additional rental assistance to eligible rural households, and
    • $100 million in grant funding through the Department of Agriculture’s Section 504 program to help low-income homeowners in rural areas repair, upgrade, and preserve affordable homes, including manufactured homes;
  • $2 billion for loans and grants to finance green preservation of HUD multifamily housing;
  • $1.75 billion for a new HUD-administered Unlocking Possibilities zoning and land use reform program to promote affordable housing and coordination with transportation investments;
  • $1.6 billion to address health and safety concerns in HUD multifamily housing;
  • $1.6 billion for the Minority Business Development Agency;
    • Of this amount, $1 billion is provided to support the business centers program, minority business enterprises, entrepreneurship education and nonprofits that support minority business enterprises,
    • $400 million to establish regional offices, perform research and evaluation and enhance administrative operations, and
    • $200 million is provided for establishing rural business centers;
  • $1.2 billion for the Federal Emergency Management Agency’s National Flood Insurance Program (while also forgiving $20.5 billion in existing debt);
  • $1 billion for the new Project Based Rental Assistance contracts, which HUD intends to allocate roughly in line with each states LIHTC allocation, while prioritizing properties in “high opportunity areas” with each state, likely as outlined in each state’s qualified allocation plan;
  • $1 billion for Native American housing;
  • $800 million for fair housing activities;
    • Of this amount, $700 million for the Fair Housing Initiatives Program, and
    • $100 million for intergovernmental fair housing activities and investigations;
  • $750 million for a new Community Development Financial Institutions Fund-administered Housing Investment Fund structured similarly to the Capital Magnet Fund;
  • $500 million for Section 202 Housing for the Elderly;
  • $500 million for Section 811 Housing for Persons with Disabilities;
  • $100 million for competitive grants to nonprofit entities to provide technical assistance and capacity building for community development corporations, community housing development organizations, community land trusts, and other mission-driven and nonprofit organizations;
  • $100 million for HUD to carry out a pilot program to expand small-dollar mortgage options to homebuyers seeking to purchase affordable homes priced at $100,000 or less; and
  • $25 million via the State Small Business Credit Initiative (SSBCI) administered by the U.S. Department of the Treasury to provide legal, accounting and financial assistance, to existing and prospective business enterprises within the factory-built housing sector applying for SSBCI loans and investments.

Next steps

As noted above, the House is scheduled to consider the legislation the week of Nov. 15 after the rules for considering the bill on the House floor were approved Nov. 5. The House is not in session the week of Nov. 8, as it often does not schedule votes during the week of Veteran’s Day (Nov. 11). The passage of House floor rules for the legislation was made possible by an agreement between House moderate Democrats, especially those in the Problem Solvers and Blue Dog caucuses, and House progressive Democrats. That agreement also allowed the Infrastructure Investment and Jobs Act, the bipartisan infrastructure legislation to be voted upon Nov. 5 and subsequently pass the House.

One key component of the agreement was the importance of the forthcoming score of the legislation by the Congressional Budget Office, which may or may not confirm the cost estimates provided by the White House. However, even the cost estimates differ, House moderate Democrats pledged to work with leadership to resolve these differences and consider the legislation. Such a resolution may postpone House consideration of the bill until the week of Thanksgiving.

If the bill passes the House before Thanksgiving, the Senate is expected to take up the legislation directly on the floor the week of Nov. 29.  Before it can be voted upon, the Senate Parliamentarian must review the entire bill for compliance with the Byrd Rule governing budget reconciliation bills in the Senate.  Such a review may lead to proposals being dropped and other changes being made. If so, the House would need to consider the bill again if the Senate passes such a revised bill. It may take until Christmas or New Year’s before final legislation could be enacted. Stay tuned.

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