Washington Wire: What Congressional Leadership Changes Mean

Published by Michael Novogradac on Tuesday, December 1, 2015
Journal thumb December 2015

The election of Rep. Paul Ryan, R-Wis., as the 54th Speaker of the House set off a chain of other changes that are sure to have real implications for the nation and various communities. Perhaps the most significant change that resulted from Ryan succeeding Rep. John Boehner, R-Ohio as Speaker was the vacancy it created for the chairmanship of the House Ways and Means Committee. After a closely watched race, the House Republican Steering Committee, with Speaker Ryan’s support, on Nov. 4 selected Rep. Kevin Brady, R-Texas, to lead the committee, over Rep. Pat Tiberi, R-Ohio. The Steering Committee also selected Rep. Tom Rice, R-S.C., to fill the open seat on the committee.

So what does Ryan’s election and the subsequent elevation of Rep. Brady mean for the affordable housing, community development, renewable energy and historic preservation communities? The full impact of these changes is unclear and will unfold in the months to come. But in the meantime, there are some indications of what lies ahead.

Tax Extenders

The main, immediate concern for most in the tax credit community – as well as the business community at large – is the need for Congress to extend a number of tax provisions that expired at the end of 2014. Chairman Brady and Senate Finance Committee Chairman Orin Hatch, R-Utah, have already begun consulting about the possible path for an extenders package and that is welcome news. Nonetheless, at the time of this writing it wasn’t yet clear if a tax extenders bill could be considered on its own or if it would be attached to other legislation. It was briefly speculated that extenders could be added to the highway bill. Some predictions suggested the pending fiscal year (FY) 2016 omnibus spending bill that must be passed by Dec. 11 could be a legislative vehicle.

The bigger question, however, is the length of extensions for the expired provisions. The Broad Tax Extenders Coalition recently sent a letter, signed by more than 2,000 businesses, associations and community development and nonprofit organizations, calling for a multiyear or permanent extension of expired and expiring tax provisions. Soon after his appointment as Chairman, Rep. Brady said addressing extenders was his top priority, and expressed support for making many extenders permanent, or at least securing a two-year extension.

And Brady’s not alone. Sen. Hatch has also been supportive of the idea of permanence for some extenders, and although the extenders package passed by the Senate Finance Committee in July is only for two years, the consideration of that bill featured repeated discussions about making certain extenders permanent. In the House, lawmakers have passed several individual bills this year with permanent extender provisions, including two sponsored by Brady. In addition, a “Dear Colleague” letter signed by Reps. Rod Blum, R-Iowa, and Peter Aguilar, D-Calif., called for long-term or permanent extensions.

Affordable Housing

In the big picture, having a Speaker who values the economic and societal benefits created by the low-income housing tax credit (LIHTC) would obviously be ideal. During his time in Congress, Rep. Boehner was supportive of the tax credit and the Housing Advisory Group reports that Speaker Ryan has shown a growing appreciation for the LIHTC.

But in the near term, the implications of these changes for the tax extenders package are of key relevance to the affordable housing community, as it’s hoped the package will include the 9 percent floor LIHTC extension for 2015 and 2016, as was passed by the Senate Finance Committee in July. That Rep. Brady has been clear that extenders legislation is on his list of immediate priorities is promising. Less clear, as it is not strictly speaking an “extender,” is the 4 percent floor for LIHTC used to finance the acquisition of existing property. This provision is included in bipartisan legislation sponsored by Rep. Tiberi and more than 70 of his House colleagues. It’s also included in the Senate Finance Committee-approved extender legislation. However, if past is prologue, the 4 percent minimum may be left off the final extenders bill.

Community Development

The New Markets Tax Credit (NMTC) Coalition reached out to Rep. Brady immediately upon his election and urged him take action to ensure that expired provisions like the NMTC are made permanent or receive a multi-year extension. In its outreach, the NMTC Coalition noted previous years’ support of more than 1,600 businesses, trade associations, local elected officials, and nonprofit organizations for an NMTC extension, including several dozen signatures from organizations located in Texas. The coalition also noted that the NMTC has generated nearly $2 billion in total project financing, creating more than 20,000 jobs in Texas.

Because the NMTC expired in 2014 and requires an extension to continue providing important contributions to the economy, the NMTC community is also focused in the short term on tax extender legislation.

Renewable Energy

Similarly, the immediate concern for the renewable energy tax credit (RETC) community is on the fate of the production tax credit (PTC) for wind and certain other sources. The 30 percent investment tax credit (ITC) is not expiring until the end of 2016, but if the term of the final extenders bill is two years, then the renewable energy community is focused on ensuring that the effective date for the ITC is changed from those properties placed in service by the end of 2016 to those that commence construction by the end of 2016, as is the case for the PTC.

Historic Preservation

Unlike the LIHTC, NMTC and RETC communities, which are currently laser-focused on tax extenders, the historic tax credit (HTC) community’s priority is the recently introduced Historic Tax Credit Improvement Act, H.R. 3846. That legislation would modernize the HTC and improve the nation’s already proven and essential financing tool for historic preservation.

While the provisions of the HTC bill would certainly improve upon an already very successful historic preservation tool, there’s considerable doubt about how far the bill is likely to progress in the current legislative environment and is more likely to be considered in the context of tax reform. As such, its key function at this time may be to help the HTC community to get their member of Congress publicly on record in support of the HTC, and to help protect it from being negatively affected by future tax reform efforts. This is particularly important because former House Ways and Means Committee Chairman Dave Camp’s tax-reform bill proposed to repeal the HTC, and that draft could remain in play as tax reform discussions will continue into 2017. Which is not to say that historic preservation supporters won’t advocate enthusiastically for the bill; its ultimate enactment is just as much a priority as the interim support it can provide for the HTC.

Tax Reform

Of course, talks about tax extenders are tinged with the prospect of tax reform, as congressional leaders consider how to move forward on more comprehensive changes in tax policy. Despite the challenges and delays presented by the election cycle and pressing financial measures that have lengthened the process, a contingent of lawmakers remain committed to advancing comprehensive tax reform. And in light of the baseline-changing effect that permanently extending the expired provisions would have, the two topics will likely remain entwined as efforts advance.

In an interview with the Wall Street Journal, Rep. Brady said he believes international tax reform in 2016 could be “a significant down payment on overall tax reform.” At the time he didn’t express preference nor allegiance to any existing plan or corresponding set of constraints. Rather, Brady said his priorities for tax reform are that it grows the economy, makes tax rates fairer flatter and simpler, closes loopholes and deductions to lower rates for everyone, but doesn’t bail out government spending.

That said, Brady has indicated a desire to lower the corporate tax rate to a level below 20 percent. If this remains a goal, it could have significant implications for the tax credit community. Novogradac research suggests that lowering the top corporate tax rate from 35 to 25 percent while maintaining 27.5 year depreciation residential rental real estate could result in as much as 8.5 percent less equity that could be raised for the creation of affordable rental housing in the 9 percent investment market and 8.6 percent less equity that could be raised for 4 percent tax-exempt bond transactions. This translates to a reduction in equity raised of million to $791 million, or more—money that would no longer be available to build, rehabilitate and preserve affordable rental housing. More information about those estimates can be found in the Novogradac special report “Affordable Rental Housing After Tax Reform: Calculating Corporate Tax Reform’s Possible Effects on Equity Raised from Low-Income Housing Tax Credits.”