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Washington Wire: Congress Returns to Short, Crowded Calendar

Published by Michael J. Novogradac on Sunday, September 1, 2013

Journal cover September 2013   Download PDF

Congress returns to session Sept. 9 from its August state and district work period, and lawmakers face a number of legislative priorities in the final four months of the calendar year. These include a few pieces of must-pass legislation, including federal appropriations measures and/or a continuing resolution to fund government operations beyond fiscal year 2013 (which ends Sept. 30), and an extension of the debt ceiling, which is likely to be reached in mid-October. Meanwhile, rumors continue to suggest a fall release of a tax reform plan by House Ways and Means Committee Chair Dave Camp, R-Mich., while he and Senate Finance Chair Max Baucus, D-Mont., mildly, though publicly, disagree as to whether the House or Senate will take the first concrete legislative step towards tax reform.

With all this in mind, the new markets tax credit (NMTC), low-income housing tax credit (LIHTC) and renewable energy tax credit communities will continue a two-pronged legislative strategy: continue to battle for survival in the face of possible tax reform, and seek extension and/or permanence of certain expiring tax provisions.

Based on the tentative schedule published by Senate Assistant Majority Leader Dick Durbin and Republican Whip John Cornyn, the Senate is scheduled to be in session for 74 days between Sept. 9 and the end of 2013. According to House Majority Leader Eric Cantor’s calendar for the first session of the 113th Congress, the House will be in session for 39 days between September and the end of 2013. These schedules are only tentative and are subject to change, but as it stands, there is very little time for legislative work to be done.

Because of the multitude of competing priorities that Congress must consider yet this year, it’s hard to gauge the prospects for tax reform, but here is what we know at this time about the proposed extensions of important new markets tax credit, low-income housing tax credit and renewable energy tax credit provisions.

NMTC Extension
The NMTC is currently slated to expire at the end of 2013. However, the Obama Administration has expressed support for funding the program in 2014 and the Community Development Financial Institutions (CDFI) Fund opted to combine the calendar year (CY) 2013 and CY 2014 rounds when it opened the 11th round in July. For CY 2013 $3.5 billion has already been authorized, and $5 billion was requested in the president’s proposed 2014 budget.

On June 11, Sens. Roy Blunt, R- Mo., and Jay Rockefeller, D-W.V., introduced S. 1133, a bipartisan bill that would make the NMTC program permanent. In a statement about the bill’s introduction, Sen. Blunt said the bill would encourage continued investment growth and job creation in low-income communities nationwide. At the time of this writing, the bill is cosponsored by Sens. Ben Cardin, D-Md., Susan Collins, R-Maine, and Sen. Maria Cantwell, D-Wash. and Lisa Murkowski, R-Alaska.

The bill’s bipartisan support is a positive sign, as is the strong endorsement of the NMTC expressed in a Dear Colleague letter that Sens. Blunt and Rockefeller circulated to encourage other Senators to sign on as cosponsors. In that letter they write, “While all NMTC investments benefit businesses in low-income communities, the NMTC does not target a specific type of business or sector. Instead of Washington picking winners and losers, the NMTC places the project underwriting responsibility with community development organizations with deep ties to the communities in which they work. We have seen the NMTC make a profound difference in low-income communities and hope you will join us in extending and expanding this important program.”

Because of its strong track record and clear results, the NMTC has had relatively few critics to date. In recent months, the New Markets Tax Credit Coalition enlisted cosigners for a letter to Congress in support of making the NMTC permanent. The letter highlights accomplishments of the NMTC since 2003, such as contributing to the creation of 350,000, and allowing $55 billion in capital leveraged to credit-starved businesses. The coalition had sent similar letters urging Congress to make the credit permanent in 2011 and 2012.

Short of making the NMTC permanent as part of tax reform, lawmakers could also opt to pass another short-term extension. At the time of this writing, legislation to temporarily extend the program had not been introduced in the 113th session of Congress.

LIHTC Rate Floor
The current 9 percent LIHTC rate floor was established in the Housing and Economic Recovery Act (HERA) of 2008. It was extended for one year in the American Taxpayer Relief Act of 2012 and expires for developments that don’t receive LIHTC allocations before Jan. 1, 2014. Without an extension of this floor, many planned affordable housing developments will be financially infeasible, and the ability of the LIHTC to serve very low-income families will be greatly hampered. In addition, a fixed rate floor simplifies state administration of the LIHTC, and provides greater stability and predictability for LIHTC property developers and investors.

On Aug. 1, a bipartisan group of 20 senators, led by Sen. Cantwell introduced S. 1442 to make permanent the fixed rate floor for 9 percent LIHTCs and to establish a fixed rate floor for 4 percent acquisition LIHTCs. The bill is similar to legislation that Sen. Cantwell and former Sen. Olympia Snowe introduced during the last Congress that failed to pass before the end of the session. S. 1442 has been referred to the Senate Finance Committee. The bipartisan support for the bill, and the program more generally, can be attributed at least in part to the LIHTC’s results. Since the LIHTC was created in 1986, it has helped finance more than 2.4 million affordable apartments nationwide and is a proven job creator. In a statement about the bill’s introduction, Sen. Cantwell said, “This bill supports a proven job creating program that means 95,000 jobs a year across the country. The Low Income Housing Tax Credit is a win-win for our communities: It leverages private capital to invest in new jobs and new housing in our communities. This legislation will improve the tax credit for years to come.”

The Affordable Rental Housing A.C.T.I.O.N. campaign is working with the affordable housing community to reach out to additional cosponsors for S. 1422 in the coming months. Strong support for this legislation in both parties and on the Senate Finance Committee will be critical, not only for extending the minimum LIHTC rate floor, but also for demonstrating support for the LIHTC as Congress considers tax reform.

PTC Extension
The renewable energy production tax credit (PTC) for wind is currently set to expire Dec. 31, 2013. A number of bills have been introduced to extend the PTC and they vary widely.

Some legislation seeks a multi-year extension. On Feb. 14, Sens. Bernie Sanders, I-Vt., and Barbara Boxer, D-Calif., introduced S. 329, the Sustainable Energy Act to extend the production tax credit until December 31, 2020 and January 1, 2021 for various renewable energy technologies. Unfortunately, that specific bill contains provisions that make it unlikely to gain much traction, such as rebate program that involves charging carbon producers a fee for producing carbon and distributing a portion of the fees as a rebate to every legal U.S. resident.

Another bill seeks to make the PTC permanent. On June 27, Rep. Jan Schakowsky, D-Ill., introduced legislation that would permanently extend the PTC for wind, geothermal, hydro and marine power. But, if enacted, H.R. 2539, the Prioritizing Energy Efficient Renewables (PEER) Act, would also eliminate the tax credit for intangible drilling costs, the domestic manufacturing tax credit for oil and gas and the percentage depletion credit for oil and gas wells. This provision means H.R. 2539 would face significant opposition.

A different piece of legislation would extend the PTC, but only temporarily, and would mandate its phase out. On Aug. 2, Rep. Michael Fitzpatrick, R-Pa., introduced H.R. 2987, the PTC Certainty and Phaseout Act of 2013. The bill would extend the PTC for electricity produced from wind through Jan. 1, 2020 and decrease the percentage of tax credits awarded to projects during that time period, eventually phasing out the PTC. The phase out will affect developments that begin construction after Dec. 31, 2013. Each year, an applicable percentage would be applied to the PTC award and energy projects that begin construction during subsequent years receive a reduced amount of tax credits. H.R. 2987 proposes reducing that applicable percentage by 10 percent each year thought 2018. By 2018, the applicable percentage will be 60 percent, and it would remain 60 percent for 2019 and at the end of the year the PTC for wind would expire.

In addition to congressional support, the PTC has support from the White House. During his State of the Union address on Feb. 12, President Barack Obama expressed support for wind and solar energy. In conjunction with his speech, the president released “The President’s Plan for a Strong Middle Class and a Strong America,” which called on Congress to make the PTC permanent and refundable.

However, the PTC does have some vocal critics in Congress and as such efforts to continue this energy incentive will face some serious headwinds. And as been proven in years past, as the PTC approaches its yearend expiration date, the wind energy development market will slow, and an early and multi-year extension will become a highly visible, key priority for renewable energy developers and investors.

Because lawmakers will have to address a number of priorities by year end, for these tax credit extension provisions to make progress it will be imperative to actively support them. And while the best outcome would be to enact extensions well before Dec. 31, the end of the calendar year doesn’t necessarily spell final defeat. When Senators and Representatives return for the second session of the 113th Congress the bills introduced this calendar year will still be viable and if necessary, though not ideal, and not without adverse effects, extensions could be enacted retroactively.

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