What Does the Two-Year Budget Deal Mean for HUD, CDFI Fund, and Tax Legislation?

Congress last week moved closer to finalizing H.R. 3877, the Bipartisan Budget Act of 2019, a two-year $2.7 trillion budget deal that would raise spending caps for fiscal years (FY) 2020 and 2021 and suspend the debt limit until July 31, 2021. The bill raises nondefense spending by $25 billion (4 percent) in FY 2020 compared to the FY 2019 spending cap, and $79 billion (15 percent) more than current law FY 2020 spending cap as mandated by the Budget Control Act of 2011 (BCA), but $9 billion less than the amount set by the House earlier this year when drafting its FY 2020 spending bills.

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H.R. 3877 was approved by the House by 284-149 and now goes to the Senate, which is expected to approve it this week. The president has expressed support for the bill and is expected to sign it.

This legislation would end the austere spending caps placed on discretionary spending for the past decade because of the BCA. Enacted in the summer of 2011, the BCA was designed to compel Congress to deal with the nation’s debt by requiring Congress to form a “super committee” to cut mandatory and/or discretionary spending by $1.2 trillion over FY 2012-2021. The failure of the super committee resulted in across the board spending cuts and the implementation of very low, back-loaded discretionary spending limits through FY 2021 (H.R. 3877 would extend sequestration cuts applying to certain mandatory spending for several years). However, the discretionary spending caps ended up only applying for two years because Congress later enacted three two-year budget deals during FY 2014-2019 to increase the spending caps, and appear poised to enact a fourth two-year budget deal.

Next Steps

Earlier this year, the House passed 10 of 12 FY 2020 appropriations bills assuming $664 billion for defense spending and $631 billion for nondefense spending. Such budget allocations were “deemed” so that the House Appropriations Committee could have budget numbers from which to draft their bills.

The Senate chose not to begin writing its FY 2020 appropriations bills until a final budget deal had been struck by the White House, the House and the Senate. With such a deal essentially now in place, it is expected the Senate Appropriations Committee will begin to work on their 12 bills, and is expected to consider its first FY 2020 spending bill September 12.

Given the very limited legislative time in September, it is unlikely the Senate can separately consider 12 bills through the subcommittee, full committee, and especially full Senate by Sept. 30. It is more likely that the Senate will package some of 12 spending bills together before bringing them up on the floor in order to speed the process, similar to the strategy employed in the fall of 2018. Nevertheless, there is a high likelihood that Congress will not enact final FY 2020 spending bills before Oct. 1 and a continuing resolution to fund the government will needed at the beginning of the new fiscal year, possibly through early to mid-December. Before that continuing resolution expires, Congress is likely to pass a FY 2020 omnibus appropriations bill.

Implications for HUD and CDFI Fund

As mentioned above, the two-year deal allows for $25 billion in additional nondefense spending in FY 2020 as compared to FY 2019, but $9 billion less than what the House “deemed” when it began to write its FY 2020 bills. While it is theoretically possible that Congress could choose to maintain the funding levels for HUD programs in the House FY 2020 Transportation-HUD spending bill and CDFI Fund appropriations in the House FY 2020 Financial Services and General Government spending bill, it is more likely that the final FY 2020 HUD program and CDFI Fund appropriations will be less than the House bills. The House FY 2020 THUD bill based on allocations from the House “deemed” nondefense budget would provide gross HUD funding a nearly 7 percent increase from FY 2019, but H.R. 3877 provides nondefense spending only a 4 percent increase. The disparity is even greater with the CDFI Fund; the House FY 2020 Financial Services and General Government spending bill would provide a 20 percent increase for the CDFI Fund. The Senate HUD and CDFI Fund proposed funding levels are more likely to be closer to the final levels as a result.

Furthermore, looking ahead, H.R. 3877 only increases nondefense spending by $5 billion in FY 2021, one-fifth the increase from FY 2019 to FY 2020. This will pose a challenge for appropriators as the annual cost increases of serving the same number of households in HUD rental assistance programs alone—not to mention the rest of HUD or nondefense discretionary spending on general— is $1.5 billion to $2 billion. This cost increase is compounded by the projected lowered Federal Housing Administration (FHA) and Ginnie Mae contributions to the HUD budget, which offset the need for new appropriations. It is highly unlikely that Congress will devote more than half the increase in nondefense spending for FY 2021 to HUD alone.

Implications for Tax Legislation

Tax writers in the House and Senate had been preparing for the opportunity to use the must-pass legislation to address the spending caps and debt limit as a vehicle to advance tax legislation in September. However, H.R. 3877 does not include any tax provisions, and so the tax legislation that might have advanced in such budget/debt legislation, such as tax extenders, disaster tax relief, possibly tax corrections, low income housing tax credit (LIHTC) and historic tax credit (HTC) provisions, likely must await another must-pass piece of legislation in order to advance. Possible upcoming options for such a must-pass vehicle include a likely continuing resolution to fund the government into the beginning of the new fiscal year, or an FY 2020 omnibus appropriations bill. In the latter case, there is a recent precedent. The temporary 12.5 percent increase in LIHTC allocations and the average income test were included in the FY 2018 omnibus appropriations law.

The best way for the tax credit community to increase the chances that LIHTC, new markets tax credit (NMTC), or HTC provisions could be included must-pass legislation is to get as many cosponsors for their respective bills (LIHTC: H.R. 3077/S. 1703, NMTC: H.R. 1680/S. 750, and HTC: H.R. 2825) as possible, and the best way to get cosponsors is to invite members of Congress to visit tax credit properties in their home districts/states during the August recess. Seeing is believing.