Senate Releases $1.7 Trillion FY 2023 Omnibus Spending Bill, Including $70.5 Billion in Gross Appropriations for HUD, $324 Million for the CDFI Fund, But No Community Development Tax Incentive Proposals
The Senate released a $1.7 trillion omnibus fiscal year (FY) 2022 spending bill Dec. 20, providing discretionary funding for all federal agencies, including U.S. Department of the Treasury and the U.S. Department of Housing and Urban Development (HUD), as well as two supplemental funding sections providing $44.9 billion to support Ukraine and $38 billion in disaster recovery aid. No disaster tax relief provisions were included with the disaster spending.
According to the Senate Appropriations Committee, the FY 2022 omnibus bill provides $773 billion in non-defense discretionary funding, a $43 billion (5.9%) increase from FY 2022. The bill provides $858 billion in defense discretionary funding, an increase of $76 billion (9.7%) from FY 2022.
The Senate is expected to pass the bill by no later than Thursday (Dec. 22) before departing for the holidays. After the Senate acts, the House is expected to consider and pass the FY 2023 omnibus bill no later than Friday (Dec. 23) before the current continuing resolution funding the federal government expires. When it reaches his desk, President Joe Biden is expected to sign it.
For HUD spending, the FY 2022 omnibus bill provides gross appropriations of $70.5 billion, a $4.8 billion (7.4%) increase from FY 2022. It is $1.4 billion (1.9%) less than the FY 2023 request, $2.5 billion (3.4%) less than the FY 2023 House THUD bill and $569 million (0.8%) more than the Senate draft FY 2023 THUD bill. There is $2.65 billion of HUD appropriations (reserved for tenant based rental assistance programs) designated as emergency spending, so only $67.9 billion of HUD gross appropriations were counted toward the $773 billion total in nondefense discretionary spending. In general, the bill’s funding levels represents a compromise between the higher amounts included in the administration request and House bill and the generally lower amounts of the Senate draft bill, providing most HUD programs with increases from last year.
No Community Development Tax Incentive Proposal Included
Unlike the FY 2021 omnibus–which was passed during a postelection lame-duck session two years ago and established the 4% floor for the low-income housing tax credit (LIHTC), $1.25 billion in disaster LIHTC allocations and provided a five-year extension of the new markets tax credit (NMTC)–the FY 2023 omnibus spending bill does not include a tax title beyond a retirement and savings tax reform package and a revenue-raising provision on conservation easements designed to help pay for the retirement and savings tax reform package. As a result, there is no provision to extend the 12.5% increase in 9% LIHTC allocations originally enacted in 2018, which was among the roughly three dozen tax provisions that expired at the end of 2021. Furthermore, the 50% private activity bond financing threshold to qualify for the 4% LIHTC was not lowered, nor was the NMTC made permanent (or was any other NMTC proposal included). No historic tax credit proposals were included, nor was any opportunity zones legislation included in the omnibus legislation. Community development tax incentives advocates were targeting the omnibus as a legislative vehicle for such proposals. Congressional leadership was unable to find a compromise to address several broad business-focused expired or expiring tax provisions along with an expansion of the child tax credit, which led to the impasse on most tax proposals. There will likely be an effort to consider these tax proposals in 2023, but their fate is uncertain.
Highlights of the HUD program funding levels follow.
Public and Assisted Rental Housing
Project-Based Rental Assistance (PBRA)
The legislation provides $14.9 billion for PBRA, which is $922 million (6.6%) more than FY 2022, but $93 million (0.6%) less than the FY 2023 request, $33 million (0.2%) less than the House bill and $219 million (1.5%) more than the Senate draft bill. According to the Senate Appropriations Committee, this funding should be sufficient to renew all rental assistance contracts expiring in FY 2023.
Tenant-Based Rental Assistance
Tenant-based rental assistance is funded at $30.3 billion (including the $2.65 billion in emergency spending mentioned above), a $2.9 billion (10.5%) increase from FY 2022, but a $1.9 billion (5.8%) decrease from the FY 2023 request, $790 million (2.5%) less than the House bill and $72 million (0.2%) more than the Senate draft bill. Of that amount, $26.4 billion is for Section 8 Housing Choice Voucher contract renewals, which is $2.3 billion (9.6%) more than FY 2022 and should be sufficient to fund all renewals. Furthermore, there is $80 million in additional incremental voucher funding is expected to house an additional 12,000 households.
For the HUD-Veteran Affairs Supportive Housing program, the omnibus provides $58 million, with $7.5 million of such funding reserved for Native American veterans. The total is $2.5 million more than FY 2022, $53 million (more than 10 times) more than the request, $2.5 million (4.5%) more than the House and $32.5 million less than the Senate draft bill. The legislation also provides $337 million for Tenant Protection Vouchers, $237 million (237%) more than FY 2022, $117 million (53.2%) more than the request, $107 million more than the House, but $27 million less than the Senate draft bill).
The omnibus includes $8.5 billion overall for public housing, $63 million (0.7%) more than FY 2022, but $266 million (3.0%) less than the request, $220 million (2.5%) less than the House bill and $46 million (0.5%) more than the Senate draft bill. Of this amount, it provides $3.2 billion for public housing capital subsidies, which is equal to FY 2022, the request, but $200 million (5.9%) less than the House bill and $25 million (0.8%) less than the Senate draft bill. The final spending bill also provides $5.11 billion for public housing operating subsidies, which is $71 million (1.4%) more than FY 2022, the House bill and Senate draft bill, and $74 million (1.5%) more than the request.
Rental Assistance Demonstration (RAD)
The omnibus bill does not include the request to eliminate the September 2024 sunset on the RAD program, nor does it authorize an increase in the public housing conversion cap. The FY 2018 omnibus increased authorization from 225,000 to 455,000 public housing apartments. As expected, the final FY 2022 bill does not provide incremental funding to facilitate such conversions, as proposed by the request ($110 million).
Choice Neighborhoods Initiative
The omnibus bill provides $350 million for the Choice Neighborhoods Initiative, which is equal to FY 2022, $100 million (40%) more than the request and the Senate draft bill, but $10 million (22.2%) less than the House bill.
Community Development Block Grants and HOME Programs
The omnibus provides $3.3 billion for Community Development Block Grant (CDBG) formula grants, which is equal to FY 2022 and the House bill, $250 million (7.0%) less than the request, and $225 million (6.4%) less than the Senate draft bill. However, just as the FY 2022 omnibus spending bill provided, the bill provides $3.0 billion in Economic Development Initiatives, better known as “earmarks,” $1.5 billion (69.7%) more than FY 2022, $1.0 billion (20.7%) more than the House bill and $1.9 billion (32.6%) more than the Senate draft bill (administration budget requests never include earmarks). Such earmarks were considered crucial in facilitating votes for spending bills in the past, as they included specific funding request for developments in member districts and states that they requested. After considering a ban for the 118th (next) Congress, House Republicans voted to retain earmarks for future spending bills.
In addition to the CDBG formula grants and earmarks, the omnibus includes $85 million in competitive CDBG grants to states and local governments, metropolitan planning organizations and other eligible entities to incentivize the elimination of exclusionary, restrictive zoning and land uses to advance fair housing and support the creation of affordable housing in every community. This provision reflects the priorities of the Unlocking Possibilities provision of the Build Back Better Act.
The omnibus bill also includes an emergency supplemental, with $3 billion in CDBG-Disaster Recovery funds for recovery from major disasters occurring in 2022 as part of the overall $38 billion disaster supplemental funding mentioned above.
Lastly, the bill also provides $1.5 billion for the HOME Investment Partnership Program, which is equal to FY 2022, but $450 million (23.1%) less than the request, $175 million (10.4%) less than the House bill, and $225 million (13.0%) than the Senate draft bill.
New Manufactured Housing Communities Program
Furthermore, the omnibus includes $225 million in competitive grants under a new account, the Preservation and Reinvestment Initiative for Community Enhancement (PRICE) to preserve and revitalize manufactured housing and resident-owned manufactured housing communities for the benefit of residents and long-term affordability of their communities. This new program reflects funding provided in the Build Back Better Act reconciliation bill that failed to advance.
Homeless and Supportive Housing Programs
McKinney-Vento Homeless Assistance Grants are funded at $3.63 billion, $420 million (13.1%) more than FY 2022, $57 million (1.6%) more than the request, $39 million (0.8%) more than the House bill and $88 million (2.5%) more than the Senate draft bill. This amount includes a $3.15 billion set-aside for the continuum of care and rural housing stability assistance programs and $290 million for Emergency Solutions Grants. It also provides $107 million to continue implementation of comprehensive approaches to preventing and ending youth homelessness, and $75 million for one-time awards for new construction, acquisition of rehabilitation of new permanent supportive housing.
The final bill provides $1.08 billion for the Housing for the Elderly (Section 202) program, $42 million (4.1%) more than FY 2022, $109 million (11.3%) more than the request and the Senate draft bill, and $125 million (10.4%) less than the House bill. The bill also provides $110 million for new capital advances or project rental assistance contracts.
The Housing for Persons with Disabilities (Section 811) program is funded at $360 million, $8 million (2.3%) more than FY 2022, $72 million (25.1%) more than the request and the Senate draft bill, and $40 million (10.0%) less than the House bill.
The omnibus bill provides $499 million for the Housing Opportunities for Persons with AIDS program to provide housing and supportive services, $49 million (10.9%) more than FY 2022, $44 million (9.7%) more than the request, $101 million (16.8%) less than the House bill, and $31 million (6.6%) more than the Senate draft bill.
U.S. Treasury’s CDFI Fund
The omnibus appropriations bill includes $324 million for the CDFI Fund, $29 million (9.8%) more than FY 2022, $7.4 million (2.2%) less than the request, $12.4 million (3.7%) less than the House bill and equal to the Senate draft bill. Within this amount, the bill provides $173 million for financial awards and technical assistance. The omnibus also provided $500 million in guarantee authorization level for the CDFI Bond Guarantee program level with FY 2022 and prior fiscal years.
Despite the timing uncertainty mentioned above, Congress is poised to pass and then President Biden to sign the legislation. With the end of the FY 2023 appropriations process in sight without a tax title, there is uncertainty on when there will be another opportunity to enact tax proposals. While there is some pressure on Congress to address the broad business-focused expired and expiring tax provisions and the proposed expansion of the child tax credit, it is unclear how the impasse Congressional leadership experienced in the year-end negotiations will be resolved. The uncertainty on House Republican leadership likely contributed to the impasse, and so it is possible that once the uncertainty is resolved, the Republican leadership next year will be able to negotiate on tax legislation more effectively.
With the conclusion of the FY 2023 budget and appropriations process, attention will turn to the FY 2024 budget request and the forthcoming need to address the federal debt ceiling of $31.4 trillion. Recent estimates project that the limit will likely be reached sometime in the first quarter of 2023, after which Treasury will employ “extraordinary measures” to avoid breaching the limit. Sometime likely in the period of May through September 2023 Treasury will no longer be able to use those “extraordinary measures” to avoid breaching the limit, likely forcing Congress to act. Such debt limit legislation may lead to spending constraints similar to the Budget Control Act of 2011, which was enacted by the House after Republicans had assumed control in the midterm election with a Senate controlled by Democrats and a Democrat in the White House.