Updated IRS Data on Multifamily Private Activity Bonds Reflects Earlier CDFA Estimates

With the recent release of the Internal Revenue Service’s (IRS’s) calendar year (CY) tax-exempt bond data, comparisons can now be made to the already available Council of Development Finance Agencies (CDFA) 2020 data. When evaluated side by side, these sources can provide an important understanding of private activity bond (PAB) similarities and differences by state.

The CY 2020 IRS data and CDFA data were strikingly similar, totaling $17.08 billion and $17.25 billion in PABs, respectively.

Despite their similarities, there are a couple key differences in IRS and CDFA PAB data.  First, the release of IRS data tends to lag behind the annual PAB data reported by the CDFA. The data collected by the CDFA comes from a survey of state PAB allocating agencies six to 10 months after the end of the calendar year, which means the CDFA data is reported more quickly. It is, however, possible that some data points may not be reported or are reported incorrectly. The IRS data is derived from Form 8038, which is submitted by all PAB issuers to qualify for tax exemptions. This makes the IRS data more accurate, but much less timely. In addition, the IRS may not disclose some states’ PAB data with few issuances because of taxpayer privacy policies.

As noted in a previous Notes from Novogradac blogpost, Novogradac also conducts an annual survey of state agencies to gather PAB and low-income housing tax credit (LIHTC) data.  

2020 IRS Data Summary

In 2020, the IRS reported that the 50 states and Washington, D.C., issued at least $17.08 billion in private activity bonds for qualified residential rental facilities, also known as multifamily PABs. As in year’s past, California leads the top 10 states in multifamily PAB issuance in 2020, with New York and Texas in second and third place. California saw an increase of $1.4 billion in multifamily PABs over 2019. The second and third largest increases from last year were Texas with an increase of $470 million and Ohio with a $335 million increase in funding. Notably, Ohio and Minnesota entered the top 10 in 2020, knocking Virginia and Maryland off the list.

The IRS has provided PAB data every year since 1988 (excluding 2016). The table below shows the top 10 states from 1988-2015 and 2017-2020, with California topping the list again. It is worth noting that Pennsylvania did not provide IRS data for 2020, but the state still appears on the cumulative top 10 list from past years. When compared to last year’s cumulative data, the cumulative top 10 remains the same.

2020 Data Remains Relatively Constant Between IRS and CDFA

In comparison to recent years, the CDFA data and the IRS data on multifamily PABs for 2020 was very similar. There was only a 0.9% difference between total issuances in the two data sets, which is by far the lowest percent difference within the past five measured years.

Upward Trends

Trend data shows an overall upwards trend over the years. Through 2007, issuances had been gradually increasing before it was disrupted by the Great Recession. There was a boom in the market from 2015-2016. The data from 2020 shows a spike in issuances, defying expectations due to the pandemic. In fact, 2020 set the record for the most issuances in history. CDFA PAB data shows a total of 87.8% of PAB issuance went towards housing in 2020, with 71% (17.2 billion) of housing PABs were used to finance multifamily rental housing. An additional $6.8 billion was used to assist low-income first-time homebuyers.

How Novogradac Can Help

Over the years, there has been a gap of around $1 billion to $2 billion in reported multifamily PAB issuances between the IRS and the CDFA. However, in 2020 there was only a 1% difference of $163 million. The three PAB sources examined together—the IRS, CDFA and Novogradac survey data—can help to paint a clearer picture of PAB issuance. Novogradac’s issuance data is regularly updated with each release of IRS and CDFA data and provides a useful resource for research, advocacy and trend analysis. The PAB data is also used to estimate the cost of PAB-related proposals, such as reducing the PAB financing threshold for 4% LIHTC from 50% to 25%.

To better understand the regulations, guidance and legislation related to the use of tax-exempt bonds in multifamily housing development, order the Novogradac Tax-Exempt Bond Handbook.