Blue Wave Effects: What a Democratic Sweep Could Mean for Affordable Housing, Community Development, Renewable Energy and Historic Preservation

Published by Michael Novogradac on Thursday, October 1, 2020
Journal Cover October Thumb 2020

(Editor’s note: This is an excerpt from a Novogradac special report, “Blue Wave Effects: What a Democratic Sweep Could Mean for Affordable Housing, Community Development, Renewable Energy and Historic Preservation.” The report examines the repercussions of a Democratic sweep in November’s election in various community development tax incentive area. The report includes the legislative, budgetary and regulatory outlook, as well as who the key Congressional figures would be. It is available at www.novoco/2020election.)

The likelihood that Democrats will keep control of the House in the November election, combined with the significant possibility that the Democratic Party could take back both the Senate and White House, has broad implications for affordable housing, community development, renewable energy and historic preservation.

Democrats have a significant edge in the current House of Representatives and are expected to maintain or expand that majority in November. Former vice president and Democratic candidate Joe Biden has consistently held a lead over President Donald Trump in national polling and, more importantly, in many battleground states. The Senate, where Republicans currently hold a 53-47 edge (including two independents who caucus with Democrats), possibly leans toward Democrats. The Senate race was discussed last month in this space.

What would the effect of a Democratic sweep of the House, Senate and White House be on affordable housing, community development, renewable energy and historic preservation tax incentives? Much depends on the economic and physical health of the nation in January, but legislation to advance the low-income housing tax credit (LIHTC), new markets tax credit (NMTC), historic tax credit (HTC), renewable energy investment tax credit (ITC) and production tax credit (PTC) and the opportunity zones (OZ) incentive would be in position for passage, as could new provisions.

What the state of the nation will be in early 2021 is an open question–one that involves the status of the COVID-19 pandemic and related economic fallout, the outcome of the Republican plan to confirm a new Supreme Court justice to fill the seat of the late Supreme Court Justice Ruth Bader Ginsburg, whether the election results are challenged and more. Beyond recovery from the adverse health and economic effects of COVID-19, there are plenty of additional priorities that would compete for attention. Those priorities include health care, environment and clean energy, racial justice and policing reform, infrastructure, foreign policy, immigration and the appointment of judges.

But whether it involves stand-alone bills or being part of a larger package, a Democratic Party-controlled House and Senate would be in position to pass legislation that promotes community development, affordable housing, renewable energy and historic preservation.

Recent years have seen significant legislation introduced in Congress, including landmark bills to expand and enhance the LIHTC, NMTC and HTC. Bills have been introduced to extend both the renewable energy ITC and PTC and to require reporting for OZs. That legislation could have a warm welcome in 2021.

Expand, Enhance Existing Incentives

With Democrats holding control of the House of Representatives and Senate, legislation concerning affordable housing, community development, renewable energy and historic preservation tax incentives would stand an improved chance at passage in 2021. Here is a look at various tax incentives and what could be expected of legislation to expand or extend them.

  • LIHTC. The Affordable Housing Credit Improvement Act (AHCIA) has been introduced in each of the past two sessions of Congress and contains many provisions that affordable housing advocates desire–including an increase in annual allocations, a permanent minimum 4 percent LIHTC rate, a basis boost for rural areas and more. The Senate version (S. 1703) had 41 co-sponsors as of mid-September and the House version had 224 co-sponsors, showing a remarkable depth of support that would carry over to a new Congress.
  • NMTC. Legislation to expand and make permanent the NMTC has been introduced in multiple sessions of Congress and a Congress led by Democrats would seem likely to pass such legislation. The NMTC Extension Act of 2019 has broad support (38 Senate co-sponsors, 127 House co-sponsors as of mid-September), including many in powerful Congressional positions. The proposal would increase the annual allocation to $5 billion (where it is this year), with an adjustment for inflation and would allow the NMTC to be taken against the alternative minimum tax. Support could also grow for eliminating the basis reduction, which makes the NMTC a taxable credit. It’s also reasonable to expect pressure to increase to provide set-asides or special priorities to for minority CDEs, persistently poor counties and Tribal communities.
  • HTC. The Historic Tax Credit Growth and Opportunity (HTC-GO) Act was introduced in both chambers of Congress in 2019 and proposed increasing the HTC from 20 percent to 30 percent through 2024 before beginning a three-year phasedown back to 20 percent, as well as increasing the percentage to 30 percent permanently for certain small projects and making several other adjustments.
  • RETCs. Democrats have discussed–and Biden has proposed–restoring and making permanent the ITC, which is currently phasing down from 30 percent to 10 percent. Biden also proposes to enhance incentives for carbon capture, use and storage. Biden wants to reinstate and extend energy efficient credits and deductions, which include the Section 45L credit for energy efficient residential buildings, the Section 25C nonbusiness energy property credit, the Section 25D residential energy efficient property credit and the Section 179D energy efficient commercial buildings deduction.
  • OZs. Biden has expressed confidence in the potential of OZs, which were created as part of the 2017 tax legislation. As part of his economic plan, Biden emphasized three points concerning OZs: that he would incentivize QOFs to partner with nonprofit or community-oriented organizations and produce a community benefit plan for each investment, that he would direct Treasury to review OZ benefits to ensure that those benefits provide clear benefits to the community and that he would require detailed reporting and public disclosure on OZ investments. Those proposals line up largely with what OZ stakeholders seek–in fact, reporting legislation was introduced this year. A Biden administration could also seek to alter the manner in which opportunity funds are initially certified.

Potential New Tax Incentives

The extension and expansion of existing credits isn’t the only possible community development legislation that could come with Democratic control of Congress and the White House. Over the past several years, myriad community development and affordable housing tax incentive provisions have been discussed or introduced as legislation.

Here are a few tax-incentive-related provisions that could become law under of a Democratic Party-led government plan.

  • The Neighborhood Homes Investment Act was introduced in Congress and included in the Moving Forward Act, passed by the House in July. This bill would create a single-family tax credit similar to the LIHTC to help finance the rehabilitation of deteriorated one- to four-unit homes in distressed neighborhoods
  • The manufacturing communities tax credit was part of Biden’s infrastructure plan introduced in November 2019. The credit would be a $6 billion, three-year credit that echoes legislation introduced by Sen. Sherrod Brown, D-Ohio, in 2014 and proposed in multiple budget requests when Biden was vice president.
  • The middle-income housing tax credit has been introduced in each of the past two sessions of Congress by Sen. Ron Wyden, D-Ore., who would certainly have power in a Democrat-controlled Senate. The 2018 legislation was for 50 percent of qualifying costs for properties where at least 60 percent of units are occupied with residents with incomes of 100 percent of the AMI or less.
  • Legislation introduced in both houses of Congress would eliminate the qualified contract provision for future LIHTC properties, which would guarantee that they would stay affordable for a minimum 30 years and retroactively reform the statutory price formula for existing properties.
  • Bills were introduced in each of the past three Congresses–with Wyden as a sponsor each time–to create infrastructure bonds and tax credits to fund federal infrastructure projects. Similar to the LIHTC and private activity bonds, Move America Bonds would be allocated to states based on their population size–the Move America Act would authorize an estimated $226 billion in bond authority over 10 years or $56 billion in tax credits.
  • Biden proposes the reinstatement and expansion of a tax credit for first-time homebuyers, which was temporarily available from 2008 until 2010 (although the structure of the credit was different in 2008 than it was in the subsequent two years). The Great Recession first-time homebuyer’s credit was $7,500 or $8,000, but Biden proposes a permanent $15,000 credit.
  • Biden also proposes a new refundable tax credit for low-income renters to limit their rent and utility payments to 30 percent of their monthly income–the same standard as Section 8 and public housing programs. This may be a particularly significant issue, since his running mate, Sen. Kamala Harris, D-Calif., introduced legislation to create a credit in each of the past two sessions of Congress: Harris’ proposed a refundable credit for households earning up to $100,000 per year ($125,000 per year in certain jurisdictions).

Sea Change Coming?

Should Democrats sweep November’s election, advocates for affordable housing, community development, renewable energy and historic preservation could have a unique opportunity to expand and enhance tax incentives in 2021. Plenty can happen in the last month before a presidential election, but if Biden retains his lead in the presidential race and Democrats squeeze out a Senate majority, 2021 could be a landmark year for not only current incentives, but could pave the way for significant new legislation.

A sweep of the House, Senate and White House in November by the Democratic Party would mark a sea change in American politics–a sea change that would likely have a monumental effect on affordable housing, community development, renewable energy and historic preservation.

See The Report

To get your copy of “Blue Wave Effects: What a Democratic Sweet Could Mean for Affordable Housing, Community Development, Renewable Energy and Historic Preservation,” go to www.novoco.com/2020election.