What the Mid-Term Election Results Mean for Affordable Housing, Community Development and Renewable Energy
On Nov. 6, Democrats took control of the House while Republicans retained control of the Senate. According to the Associated Press, Democrats have been declared the winner in 220 House seats, Republicans in 194 seats and 21 seats are still uncalled. Of those 22 races, Democrats are leading in nine, and Republicans are leading in 12. Assuming those races proceed as predicted, and the leading candidates in the 21 uncalled races are eventually confirmed, Democrats will have 229 seats in the House and Republicans will have 206.
AP reports that Republicans retained control of the Senate with at least 51 and likely 54 seats in the next Congress, while there will likely be 44 Democrats and two Independents, Sens. Bernie Sanders of Vermont and Angus King of Maine, who generally vote with Democrats and were both reelected. The race in Mississippi between incumbent Republican Sen. Cindy Hyde-Smith against Democratic candidate Mike Espy will go to a Nov. 27 run-off election where Hyde-Smith is heavily favored.
Republicans won key races in Indiana, Missouri and North Dakota. In Indiana, Republican Mike Braun beat incumbent Democrat Sen. Joe Donnelly. In Missouri, Republican Attorney General Josh Hawley defeated incumbent Democratic Sen. Claire McCaskill. In North Dakota, Republican Rep. Kevin Cramer beat incumbent Democratic Sen. Heidi Heitkamp. Democrats won a key race in Nevada where Democratic Rep. Jacky Rosen knocked out Republican incumbent Sen. Dean Heller. At the time of this writing, Republicans are leading in Arizona and Florida. All of the remaining incumbents won and Rep. Marsha Blackburn, R-Tenn., will take the seat of retiring Sen. Bob Corker, R-Tenn.
In yesterday’s election, there were 26 Democrats and Independents who caucus with Democrats up for reelection, including 10 in states where President Donald Trump won in 2016, and only 9 Republicans, including only one (Nevada) in states where Hillary Clinton won in 2016. Of the 10 states where Trump won, five were in states Trump won by double digits—Indiana, Missouri, Montana, North Dakota and West Virginia. In 2020, the map flips and 21 Republicans will be up for election compared to only 11 Democrats, including just two in states where President Trump won in 2016: Alabama and Michigan.
Sen. Mitch McConnell, R-Ky., is expected to remain majority leader while Sen. Chuck Schumer, D-N.Y. is also expected to remain the Democratic (minority) leader. Sen. John Cornyn, R-Texas, has reached his term limit as majority whip, so there will be a contest among Senate Republicans for that post. The leading candidate is Sen. John Thune, R-S.D. Sen. Dick Durbin, D-Ill., is expected to remain the Democratic (minority) whip.
Senate Finance Committee
With Sen. Orrin Hatch, R-Utah, retiring, there will be a new Senate Finance Committee chairman, while Sen. Ron Wyden, D-Ore., will remain the top Democrat on the committee. With the Republicans in control, the next Finance Committee Chairman will likely be either Sen. Chuck Grassley, R-Iowa, or Sen. Mike Crapo, D-Idaho. Grassley is currently the Judiciary Committee chairman but still has two years left under his term limit as Finance Committee chairman. Crapo meanwhile is currently the Banking Committee chairman.
Eleven of the 27 members of the Senate Finance Committee, including 10 Democrats, were up for re-election this year: Sens. Dean Heller, R-Nev.; Debbie Stabenow, D-Mich.; Maria Cantwell, D-Wash.; Bill Nelson, D-Fla.; Bob Menendez, D-N.J.; Tom Carper, D-Del.; Ben Cardin, D-M.D.; Sherrod Brown, D-Ohio; Bob Casey, D-Pa.; Claire McCaskill, D-Mo.; and Sheldon Whitehouse, D-R.I. McCaskill and Heller lost their reelection, and Nelson is trailing, but the rest were reelected.
Republicans will likely need to fill two vacancies on the committee, although the committee size and ratio could change. The likely Republicans under consideration are Sens. Todd Young, R-Ind., Cory Gardner, R-Col., Steve Daines, R-Mt., and Deb Fischer, R-Neb.
Senate Banking and Appropriations Leadership
With Grassley likely to claim the Finance Committee gavel, Crapo is expected to remain Banking Committee chairman while Brown will also remain the top Democrat on the committee. If Grassley surprisingly decides to remain Judiciary Committee chairman, then Crapo would be likely to take the Finance gavel, and Toomey would likely become Banking Committee chairman. Sen. Richard Shelby, R-Ala., is expected to remain the Appropriations Committee Chairman and Sen. Susan Collins, R-Me., is expected to remain the Transportation-HUD (THUD) Appropriations Subcommittee chairwoman, while Sens. Patrick Leahy, D-Vt., and Jack Reed, D-R.I., are expected to remain in their posts as the top Democrat on the full committee and THUD subcommittee, respectively.
All 435 seats in the House of Representatives were up for re-election. Currently, there are 236 Republicans, 193 Democrats, and seven vacancies–two of which were previously held by Democrats and the other five held by Republicans. Sixty-two representatives will not return to the House in the next Congress because they are retiring, ran for higher office, or lost their primary election, of whom 43 are Republicans and 19 are Democrats.
With Democrats claiming the majority of the House, current Democratic (Minority) Leader Nancy Pelosi, D-Calif., is expected to become speaker again, reclaiming the gavel she held from 2007-2011, despite some dissent among conservative and moderate Democrats. As current House Speaker Paul Ryan, R-Wisc., had already announced his retirement, there will be race for the incoming House Republican (minority) leader, likely between current Majority Leader Kevin McCarthy, R-Calif., and House Freedom Caucus Founder Rep. Jim Jordan, R-Ohio. If McCarthy appears unable to secure a majority among the incoming House Republican conference, it is likely that current Republican Majority Whip Steve Scalise, R-La., will throw his hat in the ring. Current Democratic (Minority) Whip Steny Hoyer, D-Md., and Assistant Democratic Leader Jim Clyburn, D-S.C., are expected to become majority leader and majority whip respectively.
Ways and Means Committee
With Democrats taking control of the House, Rep. Richard Neal, D-Mass. will become chairman of the Ways and Means Committee while Kevin Brady, R-Texas, will become the ranking member. Of the 40 current members of the Ways and Means Committee, four did not seek re-election and are retiring: Reps. Sandy Levin, D-Mich., Sam Johnson, R-Texas, Dave Reichert, R-Wash., and Lynn Jenkins, R-Kan. Another three were seeking higher office: Reps. Diane Black, R-Tenn., Jim Renacci, R-Ohio, and Kristi Noem, R-S.D. Black failed to win the Tennessee Republican gubernatorial primary election, Renacci lost the Ohio Senate election against incumbent Senator Sherrod Brown, D-Ohio, and Noem was elected the Governor of S.D. Rep. Joe Crowley, D-N.Y. lost the Democratic primary for his seat.
Most of the remaining 32 were re-elected; only Reps. Peter Roskam, R-Ill., Erik Paulsen, R-Minn., Carlos Curbelo, R-Fla., and Mike Bishop, R-Mich., failed to win reelection. Curbelo is the lead House Republican sponsor of the Affordable Housing Credit Improvement Act (AHCIA), and so a new champion will be to be identified. One candidate is Rep. Kenny Marchant, R-Texas.
In his likely new role as chairman, Neal could decide to step aside his leadership role on AHCIA and the New Markets Tax Credit Extension Act. One candidate that might become the lead House Democratic AHCIA sponsor is Rep. Suzan DelBene of Washington.
Assuming there will continue to be 40 seats on the committee next year with 24 for the majority and 16 for the minority (although the committee size and party ratio are subject to renegotiation by House leadership), there are likely 12 seats to be filled on the committee, 10 Democrats and two Republicans. Among Democrats in the running for those seats are: Reps. Marcia Fudge D-Ohio; Dan Kildee, D-Mich.; Cedric Richmond, D-La.; and Hakeem Jeffries, D-N.Y. Among Republicans under consideration are Reps. Andy Barr, R-Ky.; Drew Ferguson, R-Ga., Lloyd Smucker or Brian Fitzpatrick, both R-Pa.; Mike Johnson, R-La.; Paul Mitchell, R-Mich.; and David Kustoff, R-Tenn.
House Financial Services and Appropriations Committee Leadership
Current Financial Services Committee Ranking Member Maxine Waters, D-Calif., is expected to become chairwoman, and current Housing and Insurance Subcommittee Ranking Member Emanuel Cleaver, D-Mo. is expected to become the Subcommittee chairman, although it is possible that the Subcommittee leadership could change. Current full committee Chairman Jeb Hensarling, R-Texas, is retiring, so there will be a race for the incoming ranking member. The leading candidate is Rep. Patrick McHenry, R-N.C., but he could be challenged by Reps. Frank Lucas, R-Okla.; Blaine Luetkemeyer, R-Mo.; Bill Huizenga, R-Mich.; or Sean Duffy, R-Wisc.
Current Appropriations Committee Ranking Member Nita Lowey, D-N.Y., is expected to be chairwoman and current Transportation-HUD (THUD) Appropriations Subcommittee Ranking Member David Price, D-N.C., is expected to become the subcommittee chairman. Like Hensarling, current full committee Chairman Rodney Frelinghuysen, R-N.J., is retiring, and Reps. Kay Granger, R-Texas is the leading candidate to become the incoming ranking member, although she may be challenged by Reps. Tom Cole, R-Okla., or Tom Graves. R-Ga. Given the race for ranking member and that Rep. John Culberson, R-Texas, lost his reelection race, current THUD Appropriations Subcommittee Mario Diaz-Balart, R-Fla., may not return as THUD Subcommittee Committee ranking member.
Lame Duck Legislative Outlook
When Congress returns on Nov. 13, among the must-do legislative agenda items is addressing seven out of the 12 fiscal year (FY) 2019 spending bills (including the ones funding HUD and Treasury) currently operating under a continuing resolution (CR), which expires on Dec. 7. With the House in Democratic control in January, it’s possible that Congress could extend the CR into January or February, but it is also possible that Congress will consider FY 2019 omnibus appropriations legislation.
One major obstacle to gaining agreement on omnibus appropriations is President Trump’s pledge to fund a wall on the U.S.-Mexico border, which congressional Democrats generally oppose. The president has threatened not to sign any more spending bills, especially the Homeland Security bill unless there is sufficient funding for a border wall. A breakdown in negotiations could lead to a partial government shutdown and poison the well on cooperation for other legislative matters.
In addition to appropriations, there is a good chance that Congress will consider tax legislation in the lame duck session, which could serve as a legislative vehicle for low-income housing tax credit (LIHTC), new markets tax credit (NMTC), opportunity zone (OZ), historic rehabilitation tax credit (HTC) and renewable energy legislation.
The most obvious vehicle for tax legislation, the so-called “Tax Reform 2.0” legislation, the leading piece of which is making permanent the individual provisions of last year’s tax reform, has virtually no chance of passage in the Senate, so don’t expect that to be the vehicle. However, Tax Reform 2.0 retirement and saving proposals–could serve as a vehicle.
Better for attaching tax credit legislation would be a tax corrections bill to the tax reform legislation that passed last December. We’ve already seen the inclusion of a four-year, 12.5 percent increase in LIHTC allocations that were part of the FY 2018 omnibus spending bill passed in March to help correct the so-called “grain glitch.” Sen. Maria Cantwell, D-Wash., and others were able to get that provision added to the bill in exchange for their support for a bill that Republicans needed to pass.
Republicans want to correct several provisions in last year’s tax reform, most notably the “retail glitch” that mistakenly was drafted to force companies to write off the costs of certain property improvements over 39 years. It’s conceivable that Democrats will insist on something like a 4 percent LIHTC floor or a multiyear extension of the NMTC program in exchange for their votes.
A third legislative option is tax extenders, the traditional end-of-year tax vehicle in which legislators extend otherwise expired or expiring provisions. In 2014, the last midterm Congressional election, tax extenders included extensions of the 9 percent LIHTC floor, the NMTC and the renewable energy production tax credit. And at the following year, Congress made the 9 percent LIHTC floor permanent, gave a 5-year extensions of the NMTC and renewable energy tax credits in the PATH Act. Most Congresses at least address extenders and act on such legislation.
Some combination of the above three legislative vehicles could be combined with the FY 2019 omnibus bill before Congress adjourns for the year.
Initial 2019 Legislative Outlook
While Congress in divided control and President Trump still in office, legislative action will need to be bipartisan, and given the lack of bipartisan comity, it will be difficult for Congress to agree on major legislation. However, one issue where House Democrats and President Trump might agree could be infrastructure legislation, which in turn could authorize a federal infrastructure tax credit and serve as a legislative vehicle for LIHTC, NMTC, OZ, HTC and renewable energy legislation. In light of incoming Chairman Neal’s leadership on LIHTC and NMTC legislation over the years, there is a good chance that he will push for such legislation next year.
Congress will also need to address budget issues and the 12 FY 2020 spending bills. One immediate challenge is the return of strict budget caps and sequestration. Congress has enacted two-year budget deals that increase the defense and nondefense spending caps in recent years, and one can imagine that incoming House leadership will push hard for a new budget deal to enable the FY 2020 appropriations process to move forward. Even with a budget deal, Congress will have a challenge getting the FY 2020 spending bills signed by President Trump, who has instructed cabinet agencies to propose at least 5 percent spending cuts in the FY 2020 budget request.
More to Come
Look for the December issue of the Novogradac Journal of Tax Credits to read more about what these results mean for the LIHTC, NMTC, OZ, HTC and renewable energy communities. Elections are reminders of the importance of continued advocacy for affordable housing, community development (NMTC and OZ) and historic preservation programs.