Washington Wire: 114th Congress Expressed Bipartisan Support for Key Tax Credit Bills

Published by Michael Novogradac on Tuesday, January 3, 2017
Journal thumb January 2017

The 114th Congress, which concluded its two-year run in December, saw the introduction of many tax credit related bills. Many of these bills did not become law, yet some did. Most notably for those in the tax-credit community was the passage of the PATH Act, which extended the minimum 9 percent low-income housing tax credit (LIHTC), extended the new markets tax credit (NMTC) for five years at $3.5 billion per year and extended and gradually phased down the renewable energy investment tax credit (ITC) and production tax credit (PTC).

Congress also passed the most significant housing authorization legislation in recent years, the Housing Opportunities Through Modernization Act (HOTMA), which streamlined Housing Choice Voucher program requirements, allowed Section 8 contract terms to be extended, placed a limitation on public housing tenancy for over-income families and more.

In addition, the long-term transportation authorization law–Fixing America’s Surface Transportation Act of 2015 (HR 22)–included four affordable housing-related provisions: reforming the Low-Income Housing Preservation and Resident Homeownership Act (LIHPRHA) to allow owners access to remaining profits after all operating expenses and maintenance costs, creating a pay-for-performance energy-water savings demonstration program, permitting income recertifications every three years (rather than annually) for fixed-income households and allowing nonprofits to administer rental assistance through the Continuum of Care Program. 

But as we look ahead to the 115th Congress and the likelihood of comprehensive tax reform, it would be a mistake to ignore bills introduced but not passed during the past Congress. The end of the Congressional session means the death of those bills, but the fact that the legislation was introduced–with some bills receiving significant support–increases the possibility that they’ll reappear in some form with similar cosponsors.

In other words, if the past is the best predictor of the future, we have a good idea of what’s coming down the legislative path.

With that in mind, here’s what happened to some of the major affordable housing, community development, historic preservation and renewable energy tax credit legislation introduced during the final two years of the Obama administration.

Affordable Housing

The LIHTC world cheered as the Affordable Housing Credit Improvement Act of 2016 was introduced twice, in May (as S. 2962) and July (as S. 3237). Sen. Maria Cantwell, D-Wash., Sen. Orrin Hatch, R-Utah and Ron Wyden, D-Ore., introduced the first bill, which called for a 50 percent expansion of the LIHTC through 2020, an income-averaging election and a permanent 4 percent rate for both acquisition and tax-exempt bond-financed developments. The second bill, with the same lead sponsors, included the three provisions in the first bill and 17 additional provisions, including one to change the name to the Affordable Housing Tax Credit. 

Don’t be surprised to see this legislation–as one comprehensive bill–reappear during the 115th Congress. Among both bills, there were 17 unique cosponsors, including seven Republicans, nine Democrats and one Independent, demonstrating that there is significant support–although one cosponsor, Sen. Kelly Ayotte, R-N.H., lost her re-election bid.  There was also another bill to increase the LIHTC ceiling, among other affordable housing provisions: the Common Sense Housing Investment Act, H.R. 1662.

Another bill that may return is a new version of the Housing for Homeless Student Act of 2015, which was introduced as S.1412 by Sen. Al Franken, Sen. Rob Portman, R-Ohio, and five cosponsors. The House version (H.R. 5290) had three cosponsors. This legislation would allow buildings that provide housing for homeless students and veterans who are full-time students to qualify for the LIHTC–meaning there is no cost to the change, making it easier to pass. The fact that a similar provision is included in the Affordable Housing Credit Improvement Act could make this moot if the Affordable Housing Credit Improvement Act is reintroduced.

The Congressional session saw several bills that attempted to increase the LIHTC (and other tax credit) allocations in areas that suffered natural disasters or other emergency situations. They included the National Disaster Tax Relief Act of 2015 (H.R. 3110 and S. 1975), the Louisiana Flood and Storm Devastation Tax Relief Act of 2016 (H.R. 6137) and the Emergency East Chicago Housing Relief Act of 2016 (H.R. 6166). None passed, but it continued a long trend of Congress considering tax credit programs to spur recovery efforts in areas suffering from disasters.

The Congressional session also included efforts to create a permanent floor for the 9 percent LIHTC and 4 percent LIHTC used for acquisition (Improving the Low Income Housing Tax Credit Rate Act, H.R. 1142 and S.1193). The minimum 9 percent rate portion of the latter bill was enacted by the PATH Act.

Sen. Wyden grabbed the attention of the affordable housing community when he introduced the Middle Income Housing Tax Credit Act of 2016 (S. 3384), which proposed a tax credit modeled on LIHTC for the development of rental housing for families with incomes between 60 percent and 100 percent of the area median gross income. Sen. Wyden did not really seek cosponsors, but could pursue support for his proposal in the 115th Congress.

As always, there were several bills concerning the U.S. Department of Housing and Urban Development (HUD)–with Rep. Maxine Waters, D-Calif., as a prolific sponsor. Among Waters’ legislation was the Ending Homelessness Act (H.R. 4888), Chance at Fair Housing Act (H.R. 5085), Public Housing Tenant Protection and Reinvestment Act (H.R. 2231) and Preserving HUD’s Multifamily Field Offices Act (H.R. 5202).

A couple of other housing-related bills deserve mention: the Small Public Housing Agency Opportunity Act (H.R. 4816), which would require small public housing agencies to meet the same requirements as larger ones, and the Pay Back the Taxpayer Act (H.R. 574), which would have stopped Fannie Mae and Freddie Mac from making scheduled contributions to the Housing Trust Fund and Capital Magnet Fund. Neither passed.

Community Development

The headliner in NMTC-focused legislation was the New Markets Tax Credit Extension Act of 2015 (H.R. 855 and S. 591), which would have made the NMTC permanent, provided an inflation adjustment factor and allowed taxpayers to use the NMTC to offset the alternative minimum tax. Although the legislation didn’t advance, the House version had 67 cosponsors and the Senate version had 13–and all three House lead sponsors and four Senate lead sponsors remain in office (six of the seven won re-election, the other wasn’t on the ballot). Combine that with the bipartisan support (eight Democrats, five Republicans cosponsored in the Senate; 40 Democrats, 27 Republicans cosponsored in the House) and you can expect to see this bill reintroduced in the 115th Congress.

Another significant piece of legislation was the Investing in Opportunity Act (H.R. 5082, S. 2868), introduced by Sens. Tim Scott, R-S.C. and Cory Booker, D-N.J., and Reps. Pat Tiberi, R-Ohio, and Ron Kind, D-Wis., with 60 cosponsors in the House and 10 in the Senate. It didn’t involve NTMCs but it is significant because it would create a framework for encouraging the investment of private capital in economically distressed areas of the country. The bill would have authorized the designation of opportunity zones and provided for tax incentives, including the deferred recognition of capital gains that are reinvested there. The bill had bipartisan support among its cosponsors. 

Three other NMTC-related bills were introduced late in the session–the Rebuilding and Renewing Rural America Act (S. 3243), which included an additional $3.5 billion NMTC allocation for three years in rural communities; the Creating Opportunities for Rural Economic Expansion Act (S.3 and H.R. 6403), which would require at least 5 percent of NMTC allocations to coal country; and H.R. 6213, which would require the CDFI Fund to provide extra outreach to communities lacking much investment by community development entities (CDEs). 

Historic Preservation

One bill introduced during the session directly affected the federal HTC, but it was a biggie: the Historic Tax Credit Improvement Act of 2015. The legislation was introduced as H.R. 3846 in the House by 11 sponsors and ended up with 52 cosponsors. In the Senate, it was S. 2655, sponsored by Sen. Ben Cardin, D-Md., and Sen. Susan Collins, R-Maine, and ultimately had eight cosponsors. The bill would increase the HTC for certain small projects, allow credit transfers for some small projects, lower the expenditure threshold to qualify for the HTC from 100 percent to 50 percent of adjusted basis, reduce the depreciable basis adjustment for the property and more.

The number of cosponsors, the bipartisan nature (27 Democrat cosponsors and 26 Republicans in the House; five Democrats, three Republicans in the Senate) and the broad support of the historic preservation community makes it likely that the Historic Tax Credit Improvement Act will return in the 115th Congress.

Renewable Energy

The PATH Act, which extended and phased out the ITC and PTC, was the dominant legislation concerning renewables during the session. But there were some additional bills that caught attention, particularly in 2016.

The two most notable were the Energy Storage Tax Incentive and Deployment Act of 2016 (S. 3159), which would establish ITCs for the use of stored energy, and the Offshore Wind Incentives for New Development Act (S. 3036 and H.R. 6058) which would extend the PTC for offshore wind property until Jan. 1, 2026. 

Before the PATH Act passed, there was plenty of energy-related legislation. Senate Democrats introduced the American Energy Innovation Act of 2015, a sweeping bill that would have extended the ITC and PTC and then replaced it with a new technology-neutral 30 percent ITC and PTC that would gradually phase out. The bill had 31 cosponsors, but that total was made up of 30 Democrats and Independent Sen. Angus King of Maine, who generally votes with the Democrats. 

Other bills were introduced to extend, expand or enhance the renewable energy tax credits. They included the Prioritizing Energy-Efficient Renewables Act (H.R. 3733), the New Energy For America Act (H.R. 2412) and the Power Efficiency and Resiliency (POWER) Act (S. 1516).

Conversely, both the PTC Elimination Act (H.R. 1901 and S. 2158) and the Energy Freedom and Economic Prosperity Act (H.R. 1001) were introduced to end the tax credits. Neither bill advanced.

What’s Next?

While all eyes will be on the possibility of the biggest tax reform since 1986, there’s plenty more. Each session of Congress in this century has seen more than 10,000 bills introduced–and every session has produced a variety of bills affecting the tax credit community. The 115th Congress will be no different.

There’s no guarantee of what’s coming, but maneuvering bills through the hurdles necessary to clear before introduction– including such things as writing, negotiating and finding the right combination of sponsors–means that some of last Congress’ bills will likely be back. Such legislation as the Affordable Housing Credit Improvement Act, the New Markets Tax Credit Extension Act and the Historic Tax Credit Improvement Act all look likely to return in some form.

The tax credit community will continue to advance legislation. As Thomas Edison said, “I have not failed. I’ve just found 10,000 ways that won’t work.”