As Tax Reform Debate Looms, Senate Committee Hearing Demonstrates Bipartisan Support for LIHTC and Cantwell-Hatch Legislation

Published by Peter Lawrence on Friday, August 18, 2017 - 12:00am

August is typically a quiet time for Congress and other policymakers in Washington, D.C. Members are home in their respective states and districts, and activity in the capital slows down as heat and humidity ramps up.

However, this August may end up being different–at least with respect to the tax policy front.

First of all, shortly before the House left town, the so-called “Big Six” tax policymakers–Treasury Secretary Steven Mnuchin, White House National Economic Council Director Gary Cohn, House Speaker Paul Ryan, R-Wis., House Ways and Means Committee Chairman Kevin Brady, R-Texas, Senate Majority Leader Mitch McConnell, R-Ky., and Senate Finance Committee Chairman Orrin Hatch, R-Utah–released a joint statement on tax reform.

While the statement didn’t offer many details on what will be included in tax reform legislation–beyond abandoning the increasing unpopular border adjustment tax (BAT), calling for “unprecedented expensing” and the goal of permanent tax reform–it heralded the starting gun on the administration’s and Congress’ drive toward getting tax reform done before the end of the calendar year.

What does this mean for the low-income housing tax credit (LIHTC)? Well, less than a week after the release of Big Six joint statement, the affordable housing community had an excellent opportunity to engage with Congress on LIHTC in the context of tax reform.

In its first hearing after the joint statement release, the Senate Finance Committee held a hearing Aug. 1 on "America’s Affordable Housing Crisis: Challenges and Solutions." The hearing highlighted strong bipartisan support for affordable housing, the growing need for affordable rental housing across all communities, the importance of the LIHTC as a proven solution and primary tool for affordable rental housing, and S. 548, the legislation sponsored by Sen. Maria Cantwell, D-Wash., and Hatch to expand and improve the LIHTC to help address that need.

It was also noteworthy and positive that most members of the Finance Committee appeared at some point in the hearing. Given that most hearings (especially ones just before a recess) only include the committee chairman, ranking member and perhaps one or two other committee members, the fact that the following 19 out of 26 senators were present was a strong demonstration of bipartisan support: Chairman Hatch; Ranking Member Ron Wyden, D-Ore.; Cantwell; Charles Grassley, R-Iowa; John Cornyn, R-Texas; John Thune, R-S.D.; Johnny Isakson, R-Ga.; Rob Portman, R-Ohio; Pat Toomey, R-Pa.; Dean Heller, R-Nev.; Tim Scott, R-S.C.; Bill Cassidy, R-La.; Debbie Stabenow, D-Mich.; Bill Nelson, D-Fla.; Robert Menendez, D-N.J.; Ben Cardin, D-Md.; Sherrod Brown, D-Ohio; Bob Casey, D-Pa.; and Claire McCaskill, D-Mo.

Witness Testimony
The witnesses included a variety of perspectives, but it was significant that all of them concluded that the LIHTC was an important tool to address affordable rental housing and none suggested that there wasn’t a crisis.

Daniel Garcia-Diaz, a director of the U.S. Government Accountability Office’s (GAO) Financial Markets and Community Investment Division, gave testimony on GAO’s LIHTC report series, focusing on federal and state administration, the role of investors and syndicators, and a forthcoming report (expected in the first half of 2018) on LIHTC development costs.

Grant Whitaker, president and CEO of the Utah Housing Corporation and the current president of the National Council of State Housing Agencies, spoke about the need for affordable rental housing, the importance of state administration and what Utah has achieved through the LIHTC.

Professors Kathy O’Regan of New York University and Kirk McClure of Kansas University provided academic perspectives on the LIHTC. In addition to her scholarly work on LIHTC, O’Regan also noted her experience as HUD’s assistant secretary for policy development and research, which plays a role in designating difficult development areas (DDAs) and qualified census tracts (QCTs). While McClure offered some reform proposals, he started off his testimony to emphasize that LIHTC was a “good program.”

Granger McDonald, chairman of the National Association of Home Builders and a significant developer of LIHTC housing in Texas, strongly endorsed the LIHTC and the Cantwell-Hatch bill.

Effect of Tax Reform
One of the points raised in the hearing was the impact of merely the anticipation of tax reform on LIHTC and if enacted, how tax reform would affect LIHTC equity. Wyden reported Novogradac & Company’s finding that as much as 17 percent or more of LIHTC equity could be lost annually if the corporate tax rate is lowered in tax reform and asked Whitaker what could be done to address tax reform. Granger’s written testimony suggested one proposal to offset the impact of tax reform on LIHTC.

Hatch concluded the hearing by characterizing it as "one the best I have seen in all my years on this Committee."

What’s Next?
So, what are the next steps in tax reform and how might the LIHTC be impacted?

Throughout August, the administration and Congress have mounted a public relations campaign to advance tax reform principles. The House Ways and Means Committee even touted a daily “31 days of tax reform” message to emphasize the 31 years since the last comprehensive tax reform. Several Ways and Means Committee members, including Chairman Brady, Tax Policy Subcommittee Chairman Peter Roskam, R-Ill.; Reps. David Schweikert, R-Ariz.; and Carlos Curbelo, R-Fla., even held a news conference at President Ronald Reagan’s Santa Barbara ranch 31 years to the day after the House-Senate conference announced agreement on the Tax Reform Act of 1986 and at a replica of the table where Reagan signed his 1981 tax cut legislation.

At some point in September, the Big Six are expected to release more details on common agreement between the administration, the House and the Senate on tax reform. Mnuchin and Cohn suggested that “full details” would be released “shortly after Labor Day.”

Given the Constitution’s requirement that revenue bills originate in the House, the Ways and Means Committee will take the first concrete step in considering tax reform legislation. The administration and congressional leadership have suggested September as the target month for such consideration, but several high-priority deadlines may end up being obstacles to that goal. The House only has 12 legislative days in September to pass legislation to address the debt limit, fund the federal government into the next fiscal year and reauthorize the National Flood Insurance Program (in the midst of a hurricane season) and the Federal Aviation Administration.

After Ways and Means Committee consideration, the bill would be taken up on the House floor, but leadership would likely only allow such a vote if they had a reasonable assurance that the bill would receive 218 votes.

Meanwhile, the House intends also to pass a budget resolution for fiscal year (FY) 2018 that would include reconciliation instructions for tax reform to facilitate passage in the Senate. The Senate would also need to pass the FY 2018 budget resolution for the reconciliation instructions to be in effect.

Then, as Hatch pledged to do so this fall, the Senate Finance Committee would take its turn to consider tax legislation and it is likely to make changes to the bill before the full Senate would consider it. If it were to be passed by at least 50 Senate votes plus Vice President Mike Pence, the House would need to approve any changes before it would be sent to the president. And the administration has set an ambitious goal of getting to that stage in November. Speaker Ryan pledges that the House will do its part by no later than the end of year.

Where does the LIHTC fit into the picture? Affordable housing advocates will have only a few weeks in which to get House members as cosponsors on H.R. 1661, the House companion bill to Cantwell-Hatch, sponsored by Reps. Pat Tiberi, R-Ohio, and Richard Neal, D-Mass., before the legislative machinations will make it difficult to get members on. By getting as many members on the bill as possible, there will be a greater chance that some or all of the provisions in H.R. 1661 could be included in whatever tax reform legislation the Ways and Means Committee considers.

Furthermore, getting Senate cosponsors to the Cantwell-Hatch bill will be crucial to advancing the one major difference between the House and Senate LIHTC bills–a 50 percent allocation increase–in whatever the Senate Finance Committee considers in its version of tax legislation. In particular, Republican senators should be targeted as Cantwell and Hatch have agreed to pair Democratic cosponsors with Republicans and there are already 11 Democratic senators who have agreed to cosponsor waiting to be paired: Amy Klobuchar, D-Minn.; Kirsten Gillibrand, D-N.Y.; Robert Menendez, D-N.J.; Tim Kaine, D-Va.; Ed Markey, D-Mass.; Heidi Heitkamp, D-N.D.; Ben Cardin, D-Md.; Debbie Stabenow, D-Mich.; Sheldon Whitehouse, D-R.I.; Chris Coons, D-Del.; and Diane Feinstein, D-Calif.

This autumn could end up being quite consequential for both tax reform and LIHTC.