Whac-A-Mole, LIHTC Style

Published by Michael Novogradac on Friday, February 4, 2011 - 12:00am

With apologies in advance to PETA and all Mole lovers, I feel like I am back in the mid 70’s playing Whac-A-Mole.  As America faces unprecedented budget deficits, attention is directed to ways to cut spending, raise revenue and reduce federal tax expenditures.  This attention results in public statements popping up, almost at random, that inaccurately describe spending programs, tax provisions and federal tax expenditures.  These statements pop up in the strangest places and in the oddest ways. 

As they pop up, however, efforts must be undertaken to Whac the inaccuracy back into the hole, lest the isolated inaccuracy becomes the common opinion.

One such hole from which numerous inaccuracies regarding the low-income housing tax credit popped up was Rand Paul’s recently released bill that cuts $500 billion in spending. 

Buried in the description of the bill, on page 16, is this:
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“The Low Income Housing Tax Credit, which subsidizes construction or rehabilitation of low-income housing, is a perfect example of market manipulation that does nothing to further the mission of public housing.

  • The structure of the credit encourages projects to focus on particularly low-income areas, exacerbating the concentration of poverty within cities.
  • The tax credit is also allocated to areas where few housing affordability problems exist.
  • Finally, the program does nothing to facilitate its goal of lower rents – developers pocket $4 billion in annual tax credits while the rents in the buildings constructed under the program are generally no lower than they would have been in the absence of the program.”

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The LIHTC is not public housing, it is privately owned housing, with government provided tax credits: a public-private partnership.  Credit allocating agencies allocate the credits based on the needs of their residents, if there are concerns about agencies allocating the credit in a way that concentrates poverty, there are clear means to address the issue.  As a firm we do hundreds of market studies throughout the country, and do not find that LIHTC developments are allocated to areas without affordability problems.  These market studies, and our property compliance work, clearly demonstrate that rents are lower than what would be generated absence the LIHTC (they also generate better quality housing and more tenant services than would otherwise be available).

[BTW, the good news is, as far as I can tell, the language of the bill doesn’t actually repeal the LIHTC. ]

We’ll track Senator Paul’s proposal and others like it in the Tax Credit Tuesday Podcast, so stay tuned.